The repo market is essential to the functioning of the rest of the financial markets and as such acts as a barometer of general trading activity in the securities market. Despite the importance of the market in Europe figures on its size are difficult to obtain. Market participants acknowledge that ISMA's semi-annual surveys provide the most reliable analysis of the market so far produced, giving an insight into its structure, growth and size.
Annual market growth slows
The underlying growth in the market was measured by comparing only the returns from institutions that have participated in all four surveys. The aggregate outstanding value of repo contracts at these institutions grew by 2.2% over the year to December 2002. By comparison, the year-on-year growth of this sample between June 2001 and June 2002 was 14.4%, showing that growth decelerated sharply in the second half of 2002 reflecting harsher market conditions.
Electronic trading market share increases
The survey revealed an increased market share for electronic trading of repos, up from 12.7% of the total value of outstanding contracts in June, to 16.8% in December. Anonymous electronic trading of repos through systems that use central clearing counterparties also increased from 5.6% to 6.9% over the six-month period. The number of institutions in the survey using electronic systems for trading repo jumped to 48 from 39, and the number of institutions using anonymous systems to 35 from 21.
Cross border trading
The share of cross border trading remained relatively stable at 50.4%. Repos which traded bilaterally but settled using tri-party agreements also continued to increase, market share growing from 6.3% to 7.3%, resulting from growth in this type of contract amongst existing users, rather than entry of new users.
Types of collateral
In the latest survey, ISMA asked for greater detail on the types of collateral used in repo in Europe. Government bonds continue to account for vast bulk of collateral at 88.8% of the total. Collateral issued in the eurozone accounted for 75.7% of that in use at the time of the survey.
The euro continued to dominate the cash side with 77% of outstanding repo being denominated in this currency, sterling accounted for 10% and US dollars for 7.7%.
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 December 11, 2002. Replies were received from 82 offices of 76 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 June 11, 2003.
http://www.isma.org/surveys/repo/latest.Par.0008.ParDownLoadFile.tmp/ISMA%20European%20repo% Please click here to view the the ISMA European repo market survey.
