Cleared repo: Models, benefits and potential growth
Abstract
In June 2027 the clearing of repos on US Treasuries will become compulsory in the US market, and it is possible that regulators in other markets may follow suit. Given the high levels of non-cleared repo in both the US and Europe, increased mandating of clearing could have a major impact on the operation of the repo market and potentially more widely on financial markets. This paper puts those changes into the wider context of the motivations, origin and evolution of the cleared repo market since the 2000s in the US and Europe. It describes the mechanics and main characteristics of the major significant forms of cleared repo, provided by the Fixed Income Clearing Corporation (FICC), London Clearing House (LCH) and Eurex. It also describes recent market trends, concluding with an analysis of the potential impact of compulsory clearing in the United States and probability of other jurisdictions following the US example. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
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Author's Biography
Richard Comotto has been involved with repo for over 20 years and is a well-known figure in the market. During that time, he has been an adviser to the ICMA’s European Repo and Collateral Council (ERCC), among other things, conducting its authoritative semi-annual survey of the European repo market since 2001 and authoring its comprehensive Guide to Best Practice in the European Repo Market. His Repo FAQs page on the ICMA website is its most actively consulted published resource on repo. More recently, Richard has supported the ERCC’s Securities Financing Transactions Regulation (SFTR) Task Force and authors its Recommendations for Reporting Repos under SFTR and other guidance. Richard delivers courses for ICMA’s on repo and has trained many of those currently working in the European repo market. He has also been retained by the IMF, World Bank, Asian Development Bank and market development foundation, Frontclear, to advise on the creation of new repo markets in Central and Eastern Europe, Africa, Asia and South America.
Gilbert Scherff is a senior consultant at Dutch consultancy Asqin, where he specialises in financial markets. Prior to this he managed the business analyst team at Broadridge Financial Solutions’ Securities Finance and Collateral Management division. At Broadridge he worked with major banks on system rollouts and process re-engineering related to repo (including cleared repo), securities lending and collateral management. Previously he worked for KAS Bank in a number of roles including collateral management, trading and product management for the treasury function. Gilbert has particular expertise in the interaction of custody with securities finance and collateral management.
Martin Walker is an honorary research fellow at Warwick Business School’s Gillmore Centre for Financial Technology and a fellow of the Center for Evidence Based Management (CEBMa), The Netherlands. He has had numerous articles and papers published on topics including repo, securities lending collateral management, fintech, CBDC, blockchain, regulation, data and management. Martin’s research has been quoted in many publications including the Financial Times, The Times, Daily Express, New Statesman, Reuters, Bloomberg, Al Jazeera, Le Monde, Forbes and Wired. Previous roles include head of product management at Broadridge Financial Solutions’ Securities Finance and Collateral Management division, global head of prime brokerage technology at RBS Markets and global head of securities finance and treasury IT at Dresdner Bank.Martin has degrees from the London School of Economics and Imperial College London.
