The Global Financial Markets Association (GFMA) and the International Capital Market Association (ICMA) have today published a report, The GFMA and ICMA Repo Market Study: Post-Crisis Reforms and the Evolution of the Repo and Broader SFT Markets, which assesses the impact of post-crisis regulation on the functioning of the global repo and securities financing transactions (SFT) markets.
The report provides a broad account of the global repo market’s operation during the crisis and analyses the subsequent regulatory reforms. It finds that they have had a profound impact on banks’ SFT businesses with a significant increase in capital requirements, which could detrimentally impact the securities lending market and the way the repo market functions under stressed scenarios.
This assessment is followed by an analysis of how changes in the cost of SFTs have affected banks’ product offerings and client choices, as well as how volatility in some repo markets has impacted the selection of IBOR (Interbank Offered Rate) replacement rates.
The report includes primary research in the form of qualitative and quantitative analysis. The qualitative analysis consists of a survey on the current and future states of the repo markets, completed by 33 senior front office staff from major dealer banks across the globe. The quantitative impact study (QIS) assesses the impact of the proposed minimum haircuts for SFTs, which were introduced as part of the Basel III framework in 2017 in order to limit leverage banks provide to the non-bank sector. The QIS aims to establish if this framework will lead to unintended consequences by further contracting banks’ SFT markets participation.
