Buy-siders are looking closely at peer-to-peer repo trading platforms as an alternative to bank-facilitated repo, which has come under strain in recent years due to regulation.
Elixium, the first peer-to-peer repo trading platform, is live and gaining interest from buy-side firms concerned about rising costs and shrinking capacity in repo markets. BNY Mellon is working towards launching a similar platform.
Doubts remain, though, about the long-term role of P2P given differences in the periods over which different buy-side firms typically wish to trade.
The documentation required to trade with multiple counterparties, and counterparty risk, are also cited as barriers to platforms playing a big role in the future.
“Smaller firms risk stepping into the wrong sort of trades, accepting poor collateral unknowingly or lending to companies that are in too bad a shape,” says one buy-sider.
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