ICMA Q4 report spotlights UST repo clearing impacts, updates on EU regs

The International Capital Market Association (ICMA) released its Q4 2024 report, which includes thought leadership features on the Draghi Report – a summary of the recommendations on CMU and financial services; and driving digital transformation in global capital markets; and bond market transparency in Europe.

It also includes international capital market practice and regulatory policy updates on primary markets, secondary markets, repo and collateral markets, sustainable finance, fintech and digitalization, and several features on emerging capital markets.

ICMA covers a broad range of global repo market topics, from regional repo market developments across Europe, Asia, MENA and Africa to some of the global themes that are affecting repo market participants around the world, including important legal developments and initiatives around the GMRA.

There’s a focus on repo clearing, reflecting on the US Securities and Exchange Commission’s decision to move to mandatory clearing in the US Treasury repo market and the global ripple effects of this decision.

“While it could be argued that the move to mandatory clearing will help to underpin market resilience, particularly in light of recent events such as the pandemic induced ‘dash for cash’, the flip side is that it will increase costs for many stakeholders active in the Treasury market who will now be forced into direct or indirect membership of the clearing house, along with the various margin requirements of central clearing,” according to the report.

In addition, there’s continuing attention to the re-calibration of the Net Stable Funding Ratio (NSFR) Required Stable Funding (RSF) factors for short-term securities financing transactions that is due to be applied in the EU in June 2025. As currently written in CRR II, from the end of June 2025 the RSF factors for reverse repos are set to revert to the Basel Committee for Banking Supervision (BCBS) levels of 10% and 15% for transactions with a term of less than six months that are secured by Level 1 HQLA and nonLevel 1 HQLA collateral respectively (moving from the current levels of 0% and 5%).

The European Banking Authority’s (EBA’s) Q&A on LCR treatment of open reverse repos: the EBA is currently working on further guidance to help with the interpretation of the new approach, which clarified that inflows from open reverse repos can be recognized provided that firms “can demonstrate to the supervisor that the open reverse repo would be called and effectively mature under certain circumstances, within the following 30 days”.

Other topics included UK SFTR validation rules and and a review of a survey on sustainability repo practices.

Read the full report

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