Financial taxes, seclending and haircuts in the repo market

Two interesting news reports today on the impact of the EU’s financial transaction tax on securities lending and haircut trends in the repo market.

FTT poses threat to stock lending
Sophie Baker, Financial News
14 Dec 2011
The European Commission’s proposed financial transaction tax could have a severe impact on securities lending and the custodian banks at the heart of this market, according to law firm Cadwalader, Wickersham & Taft.

The tax, which has backing from French president Nicolas Sarkozy and German Chancellor Angela Merkel but has been met with strong opposition from the UK, will be payable on financial transactions when at least one of the parties involved in a deal is located in the European Union.

Read more here.

Mortgage-Bond Repo Lenders Stiffen Some Loan Terms, Invesco Says
December 13, 2011, 5:53 PM EST

Dec. 13 (Bloomberg) — Short-term funding secured by mortgage bonds is tightening after prices on securities used as collateral became more volatile and providers scale back their balance sheets before year-end, Invesco Mortgage Capital Inc. Chief Investment Officer John Anzalone said.

The down payments demanded for loans that are secured by mortgage securities lacking government backing have risen at some providers during the past two months, Anzalone said today in a telephone interview. The so-called haircuts in repurchase- agreement, or repo, loans typically range from 20 percent to 30 percent, depending on the types of bonds serving as collateral, after holding steady in a range of 15 percent to 30 percent, he said.

Read more here.

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