London
23 June 2017
Reporter: Drew Nicol

ICMA: NSFR will make EU repo less attractive


The International Capital Market Association (ICMA) has warned that the mandatory buy-in regime of the European Central Securities Depositories Regulation (CSDR) will be a significant deterrent to lenders of corporate bonds in the repo space.

In its latest study on the health of European corporate bond repo and securities lending market, the association reiterated its concerns that crippling regulation was the biggest risk to future of the EU repo market.

“[CSDR] will have a material impact on overall supply, particularly with respect to lower credit or less liquid corporate bonds,” explained ICMA in its report.

Along with CSDR, ICMA highlighted that the net stable funding ratio, which was introduced as part of a bundle of new requirements for banks under the Basel III framework, will also increase trading costs and limit the capacity of banks to fulfil the critical role of repo market intermediation.

According to ICMA, there is scope for creating efficiencies through automating many of the highly manual and labour-intensive processes of the market.

“However, automating the credit repo market is not straightforward, given the intricacies and nuances of the market, with the market becoming even more complex and fragmented with every new layer of regulation.”

ICMA first raised its concerns regarding the negative affect incoming regulation was having on the repo market in its quarterly market reviews, where it highlighted to huge strains that were placed on the market at year-end 2016, and reoccur at every quarter end.

Beyond regulatory concerns, ICMA said that, for the most part, supply into the European credit repo market is relatively good, particularly with respect to investment grade corporates. And while repo rates for specials, particularly in the high yield space, can be expensive and volatile, there is usually still availability.

However, the changing nature of the underlying market, with a trend toward smaller trade sizes and more rapid turn-over of dealer positions, which is making sourcing supply more difficult. While there may be plenty of bonds in the lending programmes, there is little or no economic incentive to lend small sizes for very short-periods.

The study was a joint initiative between the ICMA European Repo and Collateral Committee and the ICMA Secondary Market Practices Committee.

More regulation news
The latest news from Asset Servicing Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
SmartStream partners with Deutsche Börse Reporting Hub
25 September 2017 | Frankfurt | Reporter: Theo Andrew
Deutsche Börse Group has enlisted The SmartStream Reference Data Utility (RDU), for its new Regulatory Reporting Hub
US Volcker Rule not fit for purpose, says SIFMA
22 September 2017 | New York | Reporter: Drew Nicol
The US Volcker Rule is too broad, excessively complex, and uniquely prescriptive, according to the Securities Industry and Financial Markets Association
FCA takes pragmatic approach to MiFID II deadline
21 September 2017 | London | Reporter: Drew Nicol
The UK’s financial conduct authority has indicated it will accept a soft roll out of the second Markets in Financial Instruments Directive in January
Eurex to offer MiFID II simulations ahead of January deadline
08 September 2017 | Frankfurt | Reporter: Drew Nicol
Eurex is set to offer its clients access to a simulation trading environment later this month ahead of the MiFID II January deadline
CFTC extends position limit relief to two years
14 August 2017 | Washington DC | Reporter: Mark Dugdale
The CFTC will not enforce certain position aggregation requirements until 12 August 2019
First MiFID II position limits are set
14 August 2017 | Brussels | Reporter: Mark Dugdale
Proposed position limits on rapeseed, corn and milling wheat set in France are consistent with the objectives established in MiFID II
US regulators to work together on Volcker Rule
28 July 2017 | Washington DC | Reporter: Stephanie Palmer
Five US federal financial regulatory agencies are coordinating the efforts to review the regulatory treatment of certain foreign funds under Section 619 of the Dodd-Frank Act, better known as the Volcker Rule
More regulation news