The US Office of Financial Research (OFR), created as part of Dodd-Frank and tasked with organizing and analyzing data on financial markets and systemic risk, has published “Reference Guide to U.S. Repo and Securities Lending Markets.” What, if anything, does this paper signify for market participants? Should we care? Our article demystifies both the report and an associated blog post, which itself is entitled “Demystifying U.S. Repo and Securities Lending Markets.”
The report itself is pretty straight-forward. It walks through the mechanics of securities lending and repo, provides updated figures from the Fed’s blog on US tri-party and bilateral repo, cites market data providers in securities lending (including RMA data, making a rare public appearance after RMA pulled the quarterly spreadsheets off its website back in 2012 or so) and talks about the operational flows. There is nothing particularly new here for financial market practitioners. It was written by Viktoria Baklanova and Rebecca McCaughrin of the OFR and Adam Copeland of the Federal Reserve Bank of New York, all people who we know and recognize as competent in this area.
Did the world really need this reference guide given the plethora of very good material out there? Probably not. eSecLending, ISLA, ICMA and others have repeatedly published these kinds of guides. ISLA just published their September 2015 Market Update. The ICMA European Repo Market Survey is a consistent time series of data (for European markets of course). We published “The Securities Lending Industry in 2015” in March 2015, compiling every piece of seclending data we had or could find. None of these reports have the exact same content as the OFR’s Reference Guide, but our point is that there is enough in the market to make such a guide feel like duplicate information.
Why then publish? We think that while the market did not need this guide, US regulators did. This reference is, we think, really for regulators when talking with other regulators and with market participants about regulatory understandings. Does the repo business stop at X hours every day? Is this more or less the size of the securities lending market? This is a document that regulators can look at and refer back to later on.
We also expect that the Reference Guide is the set up for further OFR analysis work in this area, particularly on the data set. We’ve discussed the OFR’s repo pilot project and their efforts to enhance US data collection in previous articles (“Will the OFR and NY Fed Repo tracking project capture financing outside of traditional repo products? Not likely.” and “What can the OFR securities financing data collection project be used for?“) According to the OFR blog post that accompanied the Reference Guide:
“Some of the data quality issues could be remedied by requiring market participants to uniquely identify counterparties by using legal entity identifiers (LEIs) in regulatory reporting. LEIs are not currently required, although many filing forms recommend LEIs or list them as an option.”
“Working in partnership with the Federal Reserve, the OFR is now filling these critical data gaps through voluntary data collections. We have already begun to collect data on the bilateral repo market in a pilot project and expect to publish aggregated data later this year. We will soon begin collecting data on securities lending activities in a second pilot project as well.”
These ideas were a very small part of the Reference Guide but it makes sense for the Guide to be the set up. In sum: the Reference Guide is not itself required reading, but keep a close eye out for what the follow ups are.
Click here for the full report, “Reference Guide to U.S. Repo and Securities Lending Markets.”
Click here for the blog post, “Demystifying U.S. Repo and Securities Lending Markets.”