Repo at the Digital Crossroads

Finadium
December 2021

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Repo is digitizing across multiple technologies including Distributed Ledger Technology (DLT). The transition of repo from analog to digital, and the potentially broader adoption of DLT platforms, has already streamlined a range of market practices. A next phase may represent not just a technology change but also a re-ordering of business processes across the industry.

More digitization is critical, but the repo industry is yet to be aligned on the best way to get there. Digitization through DLT is not the only choice: firms have been investing in electronic trading and Straight-through Processing (STP) solutions that solve overlapping challenges. An inherent tension has developed between DLT and STP using existing technologies: the more firms have invested in STP, the more this may impede their interest in adopting DLT now or later on.

This report is the conclusion of six months of projects and interviews on the digitization of repo with a focus on DLT. It incorporates a broad number of discussions with repo dealers, vendors, triparty agents, CCPs and regulators on what repo digitization means, how to get there and what happens next. It also captures participant thinking at two recent Finadium events, Rates & Repo 2021 and a September 2021 webinar on blockchain collateral platforms. This report documents industry views on leadership, requirements for getting to digitization and what future scenarios may look like.

This report should be read by all market participants with an interest in repo and secured financing more broadly. Dealers will learn how their peers view the speed and value of digitization and DLT, while vendors can identify competitive opportunities and threats to their existing models. Regulators will see opportunities for refining their proposals on digital marketplaces to support private sector development with oversight and analytics capabilities.

Table of Contents

• Executive Summary
• Defining Digital
• Six Requirements for Repo Digitization on DLT
• What DLT Offers Versus STP
  • – Success for Non-DLT Solutions
• Characteristics of Digitization’s Leaders
• Future Repo DLT Scenarios
• About the Author
• About Finadium LLC