|
50
Figure 24: Total repo business, 2001-2011, €bn
Source: ICMA European Repo Market Survey Dec 2011
The figure below (Figure 25) shows that the majority (50% to 60%) of repos involve directly
negotiated business between the two parties to the trade.
Figure 25: Counterparty analysis
Note: ATS are automatic trading systems operating in Europe – BrokerTec, Eurex Repo and MTS.
Source: ICMA European Repo Market Survey Dec 2011
In terms of the credit quality of the collateral, information available from tri-party repos shows
that slightly less than 50% is rated AAA and between 60% and 70% is rated AAA or AA. Moreover
only a very small proportion of the collateral is rated less than A.
Table 8: Tri-party repo collateral analysed by credit rating
June 2009
December
2009
June 2010
December
2010
June 2011
December
2011
AAA
46.4%
47.7%
51.4%
46.6%
49.8%
48.3%
AA
18.7%
15.9%
15.2%
19.7%
21.8%
15.3%
A
23.1%
24.2%
20.9%
20.1%
13.1%
23.1%
BBB
5.4%
6.9%
6.7%
4.3%
6.9%
3.2%
0
1000
2000
3000
4000
5000
6000
7000
8000
200
1-Ju
n
200
1-De
c
200
2-Ju
n
200
2-De
c
200
3-Ju
n
200
3-De
c
200
4-Ju
n
200
4-De
c
200
5-Ju
n
200
5-De
c
200
6-Ju
n
200
6-De
c
200
7-Ju
n
200
7-De
c
200
8-Ju
n
200
8-De
c
200
9-Ju
n
200
9-De
c
201
0-Ju
n
201
0-De
c
201
1-Ju
n
201
1-De
c
Tot
al r
epo
bu
sin
ess
(€
bn)
0%
10%
20%
30%
40%
50%
60%
70%
Jun
Dec
Jun
Dec
Jun
Dec
Jun
Dec
Jun
Dec
Jun
Dec
2006
2007
2008
2009
2010
2011
Direct
Direct, of which tri-party
Voice-brokers
ATS
5
│
Cross-cutting issues
51
Below BBB-
1.6%
1.2%
2.2%
5.1%
2.2%
4.9%
A1/P1
4.0%
3.3%
3.4%
3.8%
4.7%
3.9%
A2/P2
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
Non-Prime
0.0%
0.0%
0.0%
0.0%
0.2%
0.0%
Unrated
0.7%
0.9%
0.1%
0.4%
1.5%
1.3%
Source: ICMA European Repo Market Survey Dec 2011
Table 9 shows that the main type of collateral is by far government bonds. Corporate bonds and
equity come a distant second and third, respectively. Of note is the fact that asset backed
securities account for only a minute fraction of the collateral in repos in Europe.
Table 9: Tri-party repo collateral analysed by type of collateral
December 2010
June 2011
December 2011
Government securities
40.6%
37.8%
45.2%
Public agencies / sub-national
3.4%
5.6%
7.2%
Supranational agencies
1.8%
2.2%
2.8%
Corporate bonds
25.5%
23.3%
18.3%
Covered bonds
6.5%
9.1%
9.7%
Residential mortgage-backed
0.4%
0.3%
1.4%
Commercial mortgage-backed
0.2%
0.3%
0.2%
Other asset-backed
0.8%
0.6%
1.0%
CDO, CLN, CLO, etc
0.6%
0.7%
0.5%
Convertible bonds
0.0%
0.1%
0.2%
Equity
19.0%
19.2%
12.8%
Other
1.1%
0.9%
0.8%
Source: ICMA European Repo Market Survey Dec 2011
Finally, the repos have typically a short maturity –almost 50% of the repos had a maturity of less
than 1 month in December 2011 (see Table 10 below).
Table 10: Maturity of repos
December 2010
June 2011
December 2011
1 day
20.9%
16.2%
15.8%
2 days to 1 week
18.9%
16.2%
16.3%
1 week to 1 month
22.7%
18.4%
16.0%
>1 month to 3 months
15.2%
12.7%
16.5%
>3 months to 6 months
5.4%
4.4%
4.3%
>6 months to 12 months
3.6%
6.9%
2.9%
>12 months
1.0%
8.7%
12.7%
Forward-start
6.7%
9.5%
9.6%
Open
5.7%
6.9%
5.8%
Source: ICMA European Repo Market Survey Dec 2011
The repo activity is concentrated in Europe with the top 10 players accounting for almost two-
thirds of all the activity. This is shown in Table 11, overleaf.
5
│
Cross-cutting issues
52
Table 11: Concentration analysis
December 2010
June 2011
December 2011
Top 10
61.7%
65.5%
64.0%
Top 20
84.4%
85.5%
84.1%
Top 30
94.3%
94.9%
94.8%
Other
5.7%
5.1%
5.2%
Source: ICMA European Repo Market Survey Dec 2011
5.3
Securities lending
While securities lending has been a long-standing practice in financial markets, it has recently
attracted policy attention, especially with regards to potential systemic risks that such activity
could pose.
5.3.1
Background
In essence, in a securities lending transaction, a beneficial owner of a security (for example, a
pension fund, an insurance company or an investment fund) agrees to temporarily transfer the
title of a security to a third party, such as prime brokers who use securities lending programmes to
help them meet customer buy orders, finance short sales and hedge derivative exposures. Hedge
funds often wish to temporarily avail themselves of the security for shorting a stock. (Adrian et al.
(2010), Committee on the Global Financial System, (2010), Faulkner (2010), Dive et al. (2011)).
The lender receives a fee for the loan and collateral, typically in excess of the value of the security
loan (the excess of the collateral relative to the value of securities loans is commonly referred to as
the haircut). Such collateral may be in the form of other high quality security or cash which can
then be re-invested by the lender. Cash collateral is a common practice.
The borrower is contractually obliged to return the borrowed security on demand within the
standard settlement period. Typically, the term of loan is overnight but is automatically rolled over
until the lender requests the return of the security or the borrower returns the security
spontaneously.
The borrower is also contractually obliged to pass on to the lender any dividends/interest received
on the security and corporate actions that occur.
In order to actively use their portfolio for securities lending purposes, securities owners such as
pension funds, investment funds and life insurance companies will often use an
intermediary/agent (custodian) who will organise and manage the loan and, very frequently,
provide an insurance that the lender will be kept whole should the borrower fail to return the
security and the collateral fall short of the amount required to replace the security.
The figure below (Figure 26) presents the various interactions between all the parties in a security
lending transaction.
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