On 4 December 2015, the ICMA board approved the proposed amendments to section 1000 of ICMA’s rules and recommendations for the secondary market (the ‘Rules’) to effect:
- changing the name of the ‘International Repo Council’/ ‘European Repo Council’ to the ‘International Repo and Collateral Council’/ ‘European Repo and Collateral Council’; and
- changes such that the relevant regional committee may determine the manner of the regional committee election procedure from time to time.
These changes took effect immediately.
ICMA’s European Repo Council (ERC) was established in December 1999 to represent the cross-border repo market in Europe. It has become the industry representative body that develops consensus solutions to issues arising in a rapidly evolving marketplace, consolidating and codifying best market practice. The ICMA ERC’s on-going efforts to establish a robust infrastructure to underpin the European repo market include the development of the Global Master Repurchase Agreement (“GMRA”) and the publication of the ICMA ERC Guide to Best Practice in the European Repo Market – a document which is periodically amended as warranted by evolution in the agreed understanding of best practice. The ICMA ERC also plays a significant role in nurturing the development of the repo market and supporting its wider use in Europe by providing educational courses and market information, such as the semi-annual survey of the European repo market.
The efficient sourcing, pricing, and mobilisation of collateral is a market function, and primarily takes place in the funding markets, with bank repo (and, on a smaller scale, securities lending) desks acting as the primary intermediaries between various collateral users and takers. Accordingly, repo desks are increasingly being regarded as collateral desks. Since the financial crisis of 2007, the importance of collateral has grown significantly. This is largely related to the shift in risk appetite of market participants, with an increased demand amongst them to secure their credit risk exposures through the taking of high quality collateral. Official policy makers have also significantly fuelled the demand for high-quality collateral as they have sought to make markets more robust, to reduce systemic risk and help mitigate the risks of any future financial crises.
Over the last few years the ICMA ERC has focussed closely on collateral. A core theme running through the ICMA’s April 2013 publication “Economic Importance of the Corporate Bond Markets” was the importance of collateral and the extent to which changes to financial regulatory rules risk impeding the functioning of the European repo market, which serves as a primary channel for the circulation of collateral. This was followed by “Collateral is the new cash: the systemic risks of inhibiting collateral fluidity” in April 2014, which describes the increasing importance of collateral and how it effectively underpins the functioning of capital markets which provide the basis for economic growth, calling for regulators to consider the impact of financial regulation on the movement of collateral. A further paper “Continually working to develop efficient and effective collateral markets”, published in September 2014, summarises continuing work which the ICMA ERC has been engaged in, collaboratively with others including in the public sector, to develop efficient and effective collateral markets.
In recognition of the intimate relationship between repo and collateral and having consulted the members of the ICMA ERC, the ICMA Board has now changed the name of the ICMA ERC to the ICMA European Repo and Collateral Council (ERCC). This change is not expected to presage a dramatic shift in the nature or role of the ICMA ERCC, but rather it is being made to recognise the reality of the way in which the market and the work of the ICMA ERCC has already evolved. Not only will it sharpen the focus of the ICMA ERCC on the critical topic of collateral, but it will also help to ensure that there is recognition in the official sector, and amongst the public, of the ICMA ERCC’s mandate to work on collateral. The ICMA ERCC’s work will continue as today, but over time new groups of member representatives may be formed to more directly tackle applicable collateral topics and challenges.
The changes to the election procedures mean that elections to the ICMA European Repo and Collateral Committee can now take place by way of electronic voting. Further details of the forthcoming 2016 election will be announced shortly.
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