Richard Comotto: what did SFTR tell us about the European repo market in Q3 2023?

In a recent post, Richard Comotto, repo market adviser and co-founder and chief product officer at London Reporting House provided an update on what data from the Securities Financing Transactions Regulation (SFTR) says about the European repo market in 2023.

The EU repo market:

  • Growth slowed to just over 4% (compared with H1) to record an average daily turnover of some €2.6 trillion ($2.8tn) and 91,000 trades. The summer break meant that growth was back-loaded into September. The estimated average tenor was about 25 days, little changed from H1 and still lower than in 2022.
  •  Average end-week balances grew at the same rate as turnover to exceed €11.7 trillion and 449,000 trades.
  • CCP-cleared transactions continued to dominate EU repo but also continued to lose share, falling to an average 55% of turnover. There was also a fall in average end-week balances to 47%, although this is still much higher than in 2022.
  • Trading Venues lost share to the OTC market, which continued to expand, reaching an average 39% of turnover at the expense of EU-based MICs, which took 51%. However, OTC activity suffered from a surge in activity in non-EU MICs in September. There was little change in shares of outstandings.
  • There continued to be a migration in terms of counterparty locations of turnover (and to a lesser degree in outstandings) away from repos between EU counterparties (47%) towards transactions between EU and non-EU counterparties (53%).

The UK repo market:

  • Growth in the average daily turnover of repos in the UK slowed to just under 3% (compared with H1) but reached 1.889 trillion and almost 65,000 trades. Other than mini-peaks in activity in mid-August and early-September, Q3 was otherwise uneventful in terms of the published data.
  • The average value of repos outstanding at end-week was €9.468 trillion (-0.4%), while the average number of outstanding trades was about 423,000 (-10%).
  • Compared to the EU repo market, the UK market continued to make less use of CCP-clearing. Moreover, that share declined further to 27% of turnover. CCP-cleared repo in the UK was even less significant in terms of end-week balances, averaging just 18%.
  • The focus of UK repo remains OTC trading (56%) rather than Trading Venues. The share of UK MICs dropped to 10% and offshore MICs fell back to 29%. The share of UK MICs in end-week balances was even lower at 8%. But so were the shares of offshore MICs and the OTC market, as continued growth in the post-trade registration of OTC trades (XOFF) topped 9%.
  • The average daily share of cross-border trades in turnover reached a new high of 83%, once again at the expense of domestic activity (16%). The pattern of changes in counterparty location was similar in terms of outstandings.

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