ICM ICMA European Repo and Co Colla llateral l Co Council il General l Meeti ting 15 November 2019, Brussels
ICMA ERCC General Meeting 15 November 2019, Brussels Welcome Remarks Godfrie ied De Vid idts Senior Advisor ICMA ERCC
ICMA ERCC General Meeting 15 November 2019, Brussels ERCC In Init itia iativ ives 2019: Help lpin ing to foster a robust and orderly ly repo and colla llateral l mark rket Mod oderator: Go Godfrie ied De De Vid idts, Senior Advisor, ICMA ERCC Pan anelli llists: Lisa Cle Lisa leary ry, Senior Director, ICMA Ri Richard Comotto, Senior Fellow, ICMA Centre Ni Nichola las Hamil ilton, Executive Director, Digital & Platform Services, J.P. Morgan; ERCC Ops chair Andy Hill ill, Senior Director, ICMA Ale lexander Westphal, Director, ICMA
37th European Repo Market Survey
provisional 37 th European repo market survey conducted in June 2019 Headline numbers: ICMA & FRBNY surveys LTRO Lehman 8,000 EUR 7,761 bn (7,845) ICMA survey 7,000 6,000 EUR billion 5,000 USD 4,473 bn (4,103) Primary Dealers 4,000 3,000 2,000 1,000 0 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19
provisional 37 th European repo market survey conducted in June 2019 Trading Analysis LTRO Lehman 70% 60% direct = 53.6% (53.0%) 50% 40% ATS = 30.3% (29.3%) 30% 20% voice-broker = 8.1% (10.8%) 10% tri-party = 8.0% (6.9%) 0% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
provisional 37 th European repo market survey conducted in June 2019 Geographical Analysis LTRO Lehman 70% 60% X-border = 52.2% (52.9%) 50% 40% 30% domestic = 25.5% (27.1%) anonymous = 22.3% (20.0%) 20% 10% 0% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
provisional 37 th European repo market survey conducted in June 2019 Geographical Analysis LTRO Lehman 45% 40% X-border out of EUR 35% = 35.3% (37.3%) 30% 25% 20% X-border to EUR = 17.0% (15.6%) 15% 10% 5% 0% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
provisional 37 th European repo market survey conducted in June 2019 Currency Analysis Lehman LTRO 90.0% 80.0% 70.0% EUR = 62.0% (59.7%) 60.0% 50.0% 40.0% 30.0% 20.0% USD = 17.0% (19.4%) GBP = 13.3% (13.2%) 10.0% other = 7.6% (7.7%) of which JPY = 4.5% (4.5%) 0.0% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
provisional 37 th European repo market survey conducted in June 2019 Collateral Analysis --- Core Eurozone Lehman LTRO 40% 35% 30% 25% 20% DE = 16.4% (17.1%) 15% FR = 14.0% (13.5%) 10% 5% BE = 3.5% (3.7%) NL = 1.9% (2.0%) 0% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
provisional 37 th European repo market survey conducted in June 2019 Collateral Analysis --- Peripheral Eurozone Lehman LTRO 20% 18% 16% IT = 14.8 % (12.6%) 14% 12% 10% 8% 6% ES = 5.2% (4.8%) 4% IE = 0.6% 2% PT = 0.6% 0% GR = 0.4% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
provisional 37 th European repo market survey conducted in June 2019 Collateral Analysis --- non-EU collateral 10% 9% 8% 7% UST = 6.4% (8.9%) 6% 5% 4% JGB = 3.6% (3.5%) 3% 2% 1% 0% Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19
provisional 37 th European repo market survey conducted in June 2019 100% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0% Collateral Analysis Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Lehman Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 LTRO Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 EU govis = 89.9% (87.3%)
provisional 37 th European repo market survey conducted in June 2019 Maturity Analysis short dates = 53.5% (50.2%) 25% 18.4% 18.5% (17.2%) 18.0% (19.5%) 17.1% (14.5%) 20% (18.5%) 11.1% (16.0%) 15% 6.6% 10% (5.8%) 4.6% 3.2% (3.8%) 5% (3.3%) 2.5% (1.4%) 0%
provisional 37 th European repo market survey conducted in June 2019 Maturity Analysis --- US v Europe 70% US (Primary Dealers) 60% Europe (ICMA survey) 50% 40% 30% 20% 10% 0% ON + open 2D to 29D 30D+
provisional 37 th European repo market survey conducted in June 2019 Maturity Analysis Lehman LTRO 160 140 120 100 days 80 max. WAM 60 40 min. WAM 20 0 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19
provisional 37 th European repo market survey conducted in June 2019 Rate Analysis open 6.9% (5.9%) floating 14.1% (12.9%) fixed 79.0% (81.1%)
Transition from EONIA to €STR
Transition from EONIA to €STR : recommended best practice for repo (from Oct 1, 2019) ▪ The Interbank market should transact purely on a fixed- rate basis (“classic repo”) and should no longer use floating rate repo. ▪ In the case of non-interbank transactions (such as dealer-to-client), where firms agree to transact on a floating-rate basis (using EONIA or €STR), best practice will be to apply the fixing of the penultimate accrual date of the transaction to the fi nal (repurchase) date (i.e. “crystalizing” the penultimate fixing into a fixed rate for the final business day). This will allow for parties to send timely settlement instructions for the repurchase leg of the transaction. ▪ Where the Repurchase Price of a floating-rate repo indexed to an overnight index has to be calculated and instructed before the fixing and publication of the final rate and the parties decide to make retrospective reimbursements for any difference between the actual and correct Repurchase Prices, it is best practice to document this agreement and the deadline for reimbursement, if necessary in the Confirmation of the transaction, and for any reimbursement to be made immediately following the Repurchase Date, but no later than 30 days afterwards. Where several reimbursements are to be claimed on the same day, a single net amount should be claimed from a counterparty, rather than separate claims for each transaction. The net claim per day per counterparty should not be for less than EUR 500 or the approximate equivalent in other currencies . ICMA ERCC memorandum outlining recommendations for repo market best practice to address the transition from EONIA to €STR
Fin inTech and th the Common Domain Model (C (CDM)
ISDA Common Domain Model (CDM) and repo ▪ The ISDA CDM has been designed as an industry solution to tackle the lack of standard conventions in how derivatives trade events and processes are represented. Developed in response to regulatory changes, high costs associated with current manual processes, and a demand for greater automation across the industry, the ISDA CDM establishes a common blueprint for events that occur throughout the derivatives lifecycle, paving the way for greater automation. ▪ Essentially the CDM creates common building blocks in machine readable format that can be used by all businesses and processes within a firm, or across the entire industry. The benefit is to recreate and represent any individual securities transaction or lifecycle event in an entirely consistent and replicable way, deriving exactly the same cashflow outputs. ▪ ICMA has embraced the opportunity to partner with ISDA in developing the CDM to encompass bond and repo markets. As with derivatives, the expected benefits to the bond and repo markets will be: • Greater internal efficiencies for firms’ various processes and IT applications: e.g. trade execution, risk management, regula tory reporting, trade confirmation, reconciliations and settlement. • Enhanced interoperability between market infrastructures, including trading venues, order/execution management systems, CSDs, CCPs, and trade repositories. • Consistency of regulatory transaction and trade reporting (MiFIR / SFTR). • A common foundation for developing new technologies such as distributed ledger and cloud services . ICMA CDM and repo & bond markets
Benefits of CDM Venue Venue Client Bank Bank Client the trade and lifecycle in their own Each party captures and processes New New Implementation of Lifecycle trade trade Consistent Industry L L I I F F Increase E Increase E C C Y Y way C C L L E E Reset Reset Maturity Maturity
ERCC Ops in initiatives
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