The survey also reveals that the market grew by over 17% in the year to June, with most of the growth taking place in the first half of 2003. The resumption of robust growth in the first 6 months of the year, after stagnation in the second half of 2002, reflects buoyant trading in the European government bond market during 2003, which has continued despite the reverses suffered by the US debt markets in the summer. The bulk of repos in Europe are against government bonds.
Godfried De Vidts, Chairman of ISMA's European Repo Council, remarked; " The most recent ISMA survey demonstrates consistent growth in the European repo market - in the future we look forward to further growth and the integration of the EU Accession countries."
The survey also points to a further increase in market share for electronic trading systems. Repo is one of the few Over-The-Counter (OTC) markets, along with spot FX and cash bonds, that is making widespread use of electronic trading. Such systems are now used by the majority of survey participants for some part of their repo business and the market share of electronic trading has risen to 18% of the total value of outstanding contracts. About half of electronic trading is accounted for by anonymous trading through systems using Central Clearing Counterparties (CCPs).
Repos, or repurchase agreements, are simply short-term loans, where a security, usually a government bond, is used as collateral. They are principally used to fund bond positions in the wholesale financial markets, which in turn are used for hedging and arbitrage strategies against derivatives; the repo market therefore underpins the functioning of the financial markets as a whole. Despite being pivotal to the securities market in Europe, figures on repo market size are difficult to obtain. ISMA's semi-annual surveys are acknowledged to provide the most reliable analysis of the market yet produced, giving an insight into its structure, growth and size.
The surveys are conducted by the ISMA Centre at the University of Reading in the UK, at the request of the European Repo Council (ERC), a body set up within ISMA's structure to promote and represent banks active in Europe's repo markets.
The latest survey asked a sample of financial institutions in Europe for the value of their repo contracts that were still outstanding at close of business on June 11, 2003. Replies were received from 84 offices of 72 financial institutions, representing the majority of significant players in the European repo market. ISMA's next repo market survey is due to take place on December 10, 2003.
Please click here to view the survey.
