The International Capital Market Association (ICMA) released the results of its 14th biannual survey of the European repo market Thursday.The survey, which is effectively a snapshot of the volume of repo trades outstanding on a single day in December 2007 based on returns from 68 financial institutions throughout Europe, sets the baseline figure for market size at € 6,332 billion, virtually unchanged over the year from the December 2006 figure of € 6,430 billion and a slight fall from the June 2007 headline figure of € 6,775.
The report finds that the total size of the repo market, calculated from a consistent sample of banks that have participated in each survey, has declined 11.7% since the June 2007 survey, indicating a more cautious approach to risk and a reduced requirement for repo financing. This figure, however, is no worse than the cyclical dips that the market has experienced in the past, points out the report.
“The latest survey shows that, despite the turmoil in the financial markets since the last survey, the repo markets have shown remarkable resilience," comments Godfried De Vidts, chairman, European Repo Council, ICMA. "The repo markets are continuing to function well, providing much needed liquidity to borrowers. It is very much a case of business as usual," he adds.
Other main findings of the survey were that the share of repo market business conducted through electronic trading systems is virtually unchanged from the last survey in June 2007 at 21.2%, and the same is true for anonymous ATS business standing at 10.5%. The market share of triparty repo was down to 9.1% from 11.8% in the previous survey.
The survey found that domestic business rose to 34.7% (from 32.0% in the previous survey), with a corresponding fall in business from non-eurozone countries to 28.5% (from 32.0% in June 2007), indicating that cross border liquidity has been affected by market turbulence.
“Our survey shows a stable environment in the electronic markets, with the marked increase in voice trading reflecting volatile market conditions," notes Godfried De Vidts, chairman, European Repo Council, ICMA. "The financial markets are still experiencing turbulence and as a result of the flight to quality we expect a pick-up in the volume of trading in the government bond markets. This, together with the anticipated opening to multi-electronic trading platforms of the various debt management Ofoices in Europe means that we are likely to see an increase in the volumes outstanding in these repo market segments in the June 2008 repo survey,” he continues.