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ISMA Survey Shows Dramatic Increase In Tri-party Repo -

Date 16/03/2004

The International Securities Market Association (ISMA) today released the results of its sixth semi-annual survey of the repo market in Europe, conducted on December 10, 2003. The survey shows that there was a dramatic increase in the amount of total outstanding repo business settled through tri-party repo arrangements in the six month period from June to December 2003. Continued steady growth in the European repo market as a whole during this period is also indicated, with a further increase in the market share of electronic trading systems.

In the latest survey, over 11% of total outstanding repo business in Europe was settled though tri-party repo arrangements (this has increased from 6.2% in the June 2003 survey). Tri-party repo is a custody solution in which a third-party custodian manages cash and collateral accounts for the repo counterparties - effectively outsourcing the bank's back office and saving on settlement costs. Although tri-party repo is clearly gaining in popularity in Europe, the survey shows that it has some way to go before it reaches the level of the US market, where tri-party repo is used in some 60% of transactions. The December figure for tri-party repo may reflect some tightening of the market, but the scale of the increase in its use suggests strong underlying growth.

Analysis of the underlying data from the banks who have taken part in all six surveys reveals that the market grew by over 22% in 2003. Most of the growth occurred in the first half of the year, the slowdown in the second half reflecting difficult trading conditions in the bond markets generally. Godfried De Vidts, Chairman of ISMA's European Repo Council, commented: "This latest ISMA survey demonstrates that there is still enormous potential for growth in the European repo market - with many institutions in Europe yet to start trading repo in appreciable volumes ".

The repo market is making increasingly widespread use of electronic trading; the market share of electronic trading has risen to 20% of the total value of outstanding contracts in this survey, demonstrating the continuing upward trend. The majority of survey participants are now using electronic systems for some part of their repo business.

Although the bulk of repo transactions in Europe continue to involve government bonds as collateral because they are readily available and easy to value accurately, the survey nevertheless indicates a continuing increase in the number of transactions where non-government bonds and indeed equities are used as collateral.

The latest survey also points to the growing integration of repo and fixed-income securities lending with very substantial volumes of securities lending business being conducted on repo desks. 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 established under the auspices of ISMA to promote and represent banks active in Europe's repo markets. A sample of financial institutions in Europe were asked for the value of their repo contracts that were still outstanding at close of business on December 10, 2003. Replies were received from 76 offices of 69 financial institutions, representing the large majority of significant players in the European repo market.

ISMA's next repo market survey is due to take place on Wednesday, June 9, 2004.

To view survey visit http://www.isma.org/surveys/repo/latest.html