Vitor Constâncio, vice-president of the European Central
Bank, has proposed the creation of a central database to
provide information on the European repo market.
"Establishing a set of timely
data concerning the repo market would be of key importance for
supervisors, central banks and market participants," said
Repo is largely an
over-the-counter (OTC) market where rates and volumes are
difficult to observe in real time. This means that, at present,
there is no comprehensive source of information in Europe.
Speaking at the
EC’s shadow banking conference on April 27,
Constâncio said that the US model could provide a
starting point for a European blueprint.
In the US, primary dealers
voluntarily report on their trading activities on a weekly
basis. They also report on their cash and financing
This takes place across a wide
variety of underlying securities differentiating according to
the counterparty type.
As in the US, a central database
would be a joint effort by public authorities and the financial
Estimates valued the US repo
market at around $12 trillion in early 2010.
Although there are no official
figures, the latest December ICMA survey, valued the total
outstanding repos in the EU in December 2011 at €6.2
According to Constâncio, the ECB’s role in
macro-prudential financial stability and the closeness of repo
to monetary policy, mean the ECB would be well placed to
centralise the data gathering for the euro repo market.
But Constâncio also called
for the EC’s support in implementing the
As a first step, the ECB
vice-president suggested that his organisation work with the EC
to prepare a detailed feasibility study for the repo market
Trade repositories have enhanced
transparency in other market segments, such as the OTC
derivatives, alongside the introduction of mandatory
But repo transactions are
largely already channelled to formal clearing and settlement
infrastructures. Central Securities Depositories (CSDs) already
centralise data on repo that can be derived from the settlement
"It could be argued that they
de facto perform already a function that is similar to
that of a trade repository," said Constâncio.
CCPs, triparty agents and
custodian banks for the bilateral segment also perform a
similar function for repos of their customers.
"A central database fed by
infrastructures and custodian banks to the extent that they
internalise repo settlement in their own books, would be the
place for the much-needed central view on repo market and its
participants, both banks and non-banks," added the ECB
But the technical details of
this solution would have to be investigated.
Infrastructures would have to
report data based on a common format. Such a format would have
to be defined taking into account their respective special
CCPs, for example, would have to
report pre-netting repo data, whereas CSDs would have to
retrieve and report data on the ordering party, often a
customer of the CSD participant.
Given that one of the main risks
stemming from shadow banking is regulatory arbitrage,
Constâncio also said that it is crucial to ensure
consistency of policy initiatives across countries.
In the US the Dodd-Frank Act
prohibits banks from proprietary trading (the so-called Volcker
rule) and restricts investments in hedge funds and private
equity by commercial banks and their affiliates.
Similar restrictions are not
being considered by the FSB, which is looking instead at
enhancing the prudential requirements related to the interplay
between banks and hedge funds.
"This could create the potential
for an asymmetry leading to distorted regulatory incentives,"
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