Eurex Repo

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Eurex Repo GmbH
Eurex Repo Logo.jpg
Founded 1999
Headquarters Frankfurt
Key People Managing Director, Marcel Naas
Website www.eurexrepo.com

Eurex Repo is an electronic OTC marketplace based on an internet platform for international repurchase agreements (repos), which are secured funding instruments that allow dealers in different debt instruments to either loan or be loaned securities over days or even months. Repo trading allows banks to lend/borrow their security holdings in exchange for cash and receive or grant liquidity as a result. The European Central Bank (ECB) and the majority of national European central banks use repo transactions to control money supply.

Eurex Repo is a European market place to offer all of the advantages of electronic trading in combination with the anonymity of the central counterparty Eurex Clearing and automated settlement processes. Repo transactions are executed electronically on Eurex Repo, they are cleared through Eurex Clearing and settled either through Clearstream or Euroclear. The central clearing facility through Eurex Clearing provides netting facilities, intra-day risk monitoring and delivery management.

Eurex Repo is wholly-owned and operated by the Swiss-German derivatives exchange Eurex, a joint venture between SIX Swiss Exchange and Deutsche Boerse. Eurex also owns the International Securities Exchange (ISE) and Eurex Bonds.

Corporate Structure and History

Eurex Repo, which operates the Swiss Franc, Repo, Euro Repo, GC Pooling and Securities Lending Markets, is a wholly-owned subsidiary of Eurex.

Launched in June 1999, the electronic Swiss Franc Repo Market initially encompasses the integrated clearing/settlement and fully automated auctions of the Swiss National Bank (SNB), followed by the Euro Repo Market in 2001. In October 2000, SWX Repo is re-branded and becomes Eurex Repo. The GC Pooling Market is launched in 2005.

More than 225 participants from nine countries are currently admitted to trading on Eurex’s repo markets.

Repo Basics

In recent years, the trading of sale and repurchase agreements - or repo as they are commonly known today - has spread dramatically from its Anglo-Saxon heartland. The market is now common throughout Europe, where the market utilizes these instruments for a variety of purposes.

In today's world, repo are the single most important means employed by central banks to carry out open market operations in order to steer liquidity within the financial system, and hence implement their monetary policies. For commercial banks, the move away from unsecured money market transactions in favor of borrowings backed by securities means a significant reduction in credit risk and the tasks associated with assessing creditworthiness. For securities dealers, Special Repo is an attractive refinancing instrument and facilitates firms' overall collateral management efforts.

Within the scope of a centralized approach to funding that includes money market transactions, forex swaps and securities lending, repo is already today an indispensable tool and constitutes an enormous amount of potential volume.

Repo Characteristics

One Agreement with combined purchase and repurchase

Repo characteristics.png

  • Bank A wants to borrow cash from Bank B for a period from overnight to about one year
  • This loan is backed with securities. Bank A lends securities to Bank B for the agreed term
  • At maturity, Bank A pays back the cash amount and the interest based on the repo interest rate. Bank B sends the securities back to Bank A
  • The securities can be government bonds, covered bonds, Pfandbriefe etc. Equity of selected highly capitalized blue chips may be exchanged too, but bond repo represent the majority of the market volume

The motivation to trade a repo is either to borrow cash and lend a security out of a basket (GC Repo) or to borrow a specific security against cash (Special Repo). The following table illustrates the difference:

Analysis: Repo - Collateral Divides the Repo Market

Analysis repo.png

Given the above arguments, the market will grow in the GC Repo market, but only with a fully integrated value chain.

History of the Repo Market

History repo market.png

Volume

Volume in repos is quoted in "average outstanding volume"

  • Total volume on Eurex Repo rose 12 percent from July 2008 to July 2009. The average outstanding volume increased from EUR 138 billion in July 2008 to EUR 155 billion in July 2009
  • Volume on the Swiss segment of Eurex Repo decreased by 26 percent in Swiss Frank terms, from an average outstanding volume of CHF 100 billion in July 2008 to CHF 75 billion in July 2009
  • Volume on the Euro Repo segment of Eurex Repo rose by 46 percent, from an average outstanding volume of EUR 73 billion in July 2008 to EUR 106 billion in July 2009
  • Volume on GC Pooling, the cash-driven market of the Euro segment, increased by 86%, from an average outstanding volume of EUR 41 billion in July 2008 to EUR 76 billion in July 2009

Milestones

2009

  • Jun 2009 - Record outstanding volume of EUR 130.2 billion reached in the Euro Market
  • Jun 2009 - Record outstanding volume of EUR 101.4 billion reached in GC Pooling
  • Aug 2009 - Eurex Repo launched the GC Pooling EUR Overnight Index (GCPI) as the measure of the overnight interest rates in the secured money market (denominated in Eur)

2008

  • Nov 2008 - Launch of GC Pooling EXTended Basket
  • Nov 2008 - The minimum trading size has been reduced to EUR 500.000 for Special Repo trading
  • Nov 2008 - Non Euro collateral eligible for GC Pooling basket (USD, GBP, JPY)
  • Oct 2008 - Record outstanding volume of CHF 72.3 billion reached in the CHF Interbank Market
  • Sep 2008 - Record outstanding volume of CHF 66 billion reached in the CHF Interbank Market
  • Mar 2008 - Introduction of Open Repo, Variable Repo and Open-Variable Repo in the Euro Market
  • Jan 2008 - Record outstanding volume of EUR 32 billion reached in GC Pooling

2007

  • Dec 2007 - Record outstanding volume of SF 101 billion reached in the Swiss Franc Market
  • Nov 2007 - Introduction of additional GC Pooling contract “EGC Pool Flex TERM”
  • Oct 2007 - Extension of GC Pooling basket with issues of Investitionsbank Berlin and Landeskreditbank Baden-Württemberg
  • Sep 2007 - Extension of GC Pooling to Eurobonds and a wide range of European bonds
  • Jul 2007 - Introduction of German Pfandbrief securities
  • Jun 2007 - Introduction of the Direct Hit functionality in the CHF Market
  • Apr 2007 - Introduction of “Overnight CBL INTERNAL” contracts for GC and Special
  • Mar 2007 - Introduction of Triparty Euro GC Basket Trading
  • Feb 2007 - Record outstanding volume of EUR 58 billionn reached in the euro Market

2006

  • Dec 2006 - Introduction of European Government and European Corporate Bonds GC Baskets for GC & Special trading
  • Oct 2006 - Introduction of CCP Default Netting Facility for Euro GC Pooling trades
  • Sep 2006 - Automated settlement process for Inflation-linked German Government Bonds
  • Jul 2006 - Fifth anniversary of Euro Repo Market

2005

  • Sep 2005 - Launch of the SecLend Market
  • May 2005 - Introduction of Fixed Income CCP
  • Apr 2005 - Launch of Swiss Franc Repo Multi-Currency Market
  • Mar 2005 - Introduction of GC Pooling
  • Feb 2005 - Introduction of International Securities in the Euro Repo Market

Other News

  • June 2009 - record outstanding volume of EUR 130.2 bn reached in the EUR Repo Market
  • June 2009 - record outstanding volume of EUR 101.4 bn reached in the GC Pooling
  • Since February 23, 2009 Eurex Repo GC basket and GC Pooling quotes are available on Reuters page.

Resources

References

Collateral:Securities Lending, Repo, OTC Derivatives and the Future of Finance (Paperback). Amazon.com.