GFMA and ICMA recommend recalibrations and carve-outs in global SFT regulation

The GFMA and ICMA Repo Market Study: Post-Crisis Reforms and the Evolution of the Repo and Broader SFT Markets

This report, The GFMA and ICMA Repo Market Study: Post-Crisis Reforms and the Evolution of the Repo and Broader SFT Markets, has been written to provide an analysis and evaluation of the post-crisis assessment of the vulnerabilities in the SFT markets, the subsequent regulatory reforms and how the reforms have influenced the way the SFT markets function. It also highlights practitioners’ views on potential future developments and vulnerabilities that may stem from regulation and other factors.

In many ways, the repo market represents the foundation stone of the financial system, vitally facilitating the flow of cash and securities across the system. More broadly, the SFT markets play a crucial and central role in the modern nancial ecosystem, facilitating a number of critical functions and interacting with a variety of different financial markets and their users.

The post-crisis reforms have led to a financial system that depends on high-quality collateral that has low volatility and a high degree of liquidity as its foundation. The system has more concentrated inter-connectivity with derivatives clearing requirements, limited unsecured funding capacity and higher mitigation of counterparty risk, using collateral. Therefore, it is imperative that the system has adequate capacity to move high-quality collateral – mainly through SFTs – across the system to where and when it is needed by market participants.

In recognition of the work undertaken by the Committee on the Global Financial System, the Bank of England and U.S. Treasury and understanding the fundamental importance of the SFT markets, GFMA and ICMA decided to provide an up-to-date view of the SFT markets from the industry viewpoint. As such, this is a contribution to the ongoing debate on whether these markets fulfill their economic functions as effectively as possible, given the multitude of constraints that have and are yet to be put in place as part of the post-crisis regulatory reform package as well as other markets regulations.

This report brings together a vast array of previous work across key themes and further adds to the existing research through a survey that was run among 33 senior practitioners, often heads of repo and collateral management desks across North America, Europe and Asia. It also includes quantitative assessment of the SFT minimum haircuts regime, which may lead to unintended consequences if the scope of transactions and counterparties is not further clarified in the yet to be implemented Basel Committee of Banking Supervision’s (BCBS) credit risk framework.

We believe that this report is a timely contribution since the Financial Stability Board and the BCBS are already working on evaluation of the post-crisis reforms, and their coherence and calibration.

We would like to thank all participating member firms for their active cooperation and contribution to this important project.

The full report is available at

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