Chapter 3: Conclusion

The post-Covid rally in overall repo market activity continued into the first-half of 2022. Otherwise, this was a quiet time in the European repo market.

Growth was most evident in rapid increase in trading on most automatic electronic trading systems (ATS) and the recovery of automated electronic trading. Tri-party repo, long suppressed by central bank cash, continued to revive.

On the other hand, growth in the survey was more concentrated than in previous surveys and the survey sample grew faster than the market as a whole as measured by SFTR public data. Given that the survey is driven largely by the major repo intermediaries, it may be that the interdealer core is outpacing the rest of the market. This suggestion is supported by the strong growth in ATS, which are almost exclusively interdealer.

Fast growth in turnover but slower growth in the outstanding value of automatic and automated electronic business implies a lengthening of maturities in this segment. This was in contrast to the survey as a whole, where there was the usual mid-year shift towards short-dated repos. Longer maturities in electronicallytraded repo could reflect a recovery in cash-driven GC (general collateral) business or greater interest in term transactions in response to further expected increases in official interest rates. The continued recovery in tri-party repo supports the suggestion that the demand for cash is recovering.

It may also be relevant that ATS business seems to have decreased in average size, which could indicate more business in specific securities issues (specific repos tend to be smaller than cash-driven GC or general collateral repo). The securities most in demand were German, French and Italian government securities. This would be consistent with reports of persistent or worsening collateral scarcity (and growing concerns about the approaching end-year).

The hypothesis about the drivers of increased activity in both cash and securities-driven repo is supported by the opposite directions of Eurex Repo and GC Pooling. The former trades specifics and GC: the latter is pure GC. The average maturity on Eurex Repo seems to have contracted but the average maturity on GC Pooling seems to have lengthened. This contrast could be a sign of the impact of greater collateral scarcity on trading on Eurex Repo (buyers less willing to lend collateral for longer terms) and more term business on GC Pooling (in response to expected rate rises).

The increase in the share of the US dollar and Japanese yen may reflect the strength of the dollar but also cross-currency basis arbitrage opportunities.