SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

MAIN PLAYERS AND ARRANGEMENTS

Furthermore, in the tri-party market there tends to be a clearer segmentation between cash takers and cash providers than there is in the bilateral market. Few tri-party market par- ticipants are active on both sides of the market. Furthermore, this market is highly concen- trated, with relatively few cash takers compared to the number of cash providers 16 . • Cash-takers Cash-takers are traditionally institutions such as investment banks, broker-dealers, hedge funds or prime brokers who have a constant thirst for the cheapest and most reliable sourc- es of liquidity in order to finance their trading activities or their investment portfolios. • Cash providers Cash providers are typically central banks, supra-nationals, commercial banks, asset man- agers and other institutional investors or agent lenders, who are looking to re-invest their cash in exchange for acceptable collateral.

2.3

Electronic trading platforms and Central Clearing Counterparts (CCPs)

2.3.1

Electronic trading platforms

In the repo market as in the securities lending market, the business is heavily relation- ship-driven and the majority of transactions are still performed out of electronic trading platforms, on a voice-brokered and bilateral trading basis. Transactions are typically ne- gotiated between counterparts on the phone and followed up with written or electronic confirmations. The growing consensus is that both the voice-brokered and direct trading markets will continue to play significant roles, accounting for the bulk of more complex and long-term, higher-value tickets 17 .

However, over the last decade, some electronic trading platforms have emerged, which pro- gressively gain ground, especially for short-term transactions and General Collateral (GC):

> BrokerTec, Eurex repo and MTS in the European repo market; > Equilend, SecFinex, ISec and eSecLending in the securities lending market.

These specialised trading platforms change the way players work and support the growth and demands of the industry, providing more precise portfolio information, increasing mar- ket efficiency and trading volumes, improving process standards and reducing operational risks. However, each platform is specialised within a specific market, making it difficult to find cross-industry standardisation. According to the latest ICMA’s survey conducted among 58 institutions, as at December 2009 in Europe the electronic repo trading had a market share of only 27.5%, against 18.5% for voice-brokers and 54% for direct (see figure 27).

16-17 Source: Global Custodian, “Collateral: Securities Lending, Repo, OTC Derivatives and the Future of Finance”, 2007

page 40 | Securities Lending & Repo markets