Triparty Repo in the US: Well Begun But Far from Done

by Anshuman Jaswal, PhD, November 10, 2011
Industry Trends
North America

Abstract

The US triparty repo market has decreased from a high of US$2.8 billion on average daily collateral value in May 2008 to US$1.6 billion in August 2011. This is due to the impact of the financial crisis and the weaker global economy on the repo markets.

The US triparty repo (TPR) market has undergone reforms in response to upheavals from, and weaknesses exposed by, the financial crisis. The reforms are being implemented by an industry task force constituted by the New York Federal Reserve under the guidance of the Payments Risk Committee (PRC). In a new report, Triparty Repo in the US: Well Begun But Far from Done, Celent looks at the impact of the PRC reforms, which are expected to reduce the intraday credit provided to broker-dealers by clearing banks to 10% of previous levels. They are also going to encourage both the cash borrowers and the cash investors to strengthen their collateral management.

In the last 15 months, the value of collateral has stayed in the range of US$1.6 trillion. Moving the unwinding process to 3:30 p.m., one of the implemented reforms, did not seem to affect the volumes in August 2011.

“With regard to implementation of the reforms, several issues have arisen, and the process is significantly more complex than it was expected to be,” says Anshuman Jaswal, Celent Senior Analyst and author of the report. “The measures taken impose costs of implementation on cash investors, which might deter their participation in the market.”

This report begins looks at the mechanism of the triparty repo market and the timelines adhered to on a daily basis. It also looks at volumes in the market, the type of collateral used, and the concentration of trading. From there, the report examines the recommendations of the PRC task force and the operational arrangements required to see them through. The impact of the recommendations on the market and different stakeholders is also studied. Finally, the report looks at some of the issues that might arise from the implementation of the recommended reforms.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

Market Overview

7

 

Comparison of Two Leading Triparty Repo Markets: US and Switzerland

12

Market Reform

13

 

Impact of Task Force Reforms

14

Issues with Task Force Reforms

17

Conclusion

19

Appendix

20

Leveraging Celent’s Expertise

22

 

Support for Financial Institutions

22

 

Support for Vendors

22

Related Celent Research

23

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