Repo in the D2C market stands to be improved considerably by electronification

Published on 4 November 2019

By bringing together the dealer-to-dealer repurchase agreement (repo) market with dealer-to-client market, asset managers can gain real advantages from trade clearing to straight-through-processing. Electronification of the market will continue to increase, says Oliver Clark, head of product at MTS and Tim Martins, head of product for repo and money markets at MTS, which will continue to create new efficiencies for investment firms, spurred on by regulation such as the Securities Finance Transaction Regulation (SFTR).

Hamish McArthur I’m Hamish McArthur, this is Trader TV, and we’re here at the Fixed Income Leaders Summit in Barcelona. I’m here with Tim Martins and Oliver Clarke of MTS. Tim, Oliver, thank you for coming.

Both Pleasure.

Hamish McArthur So what is impeding liquidity in the repo markets today?

Oliver Clarke Nothing is impeding liquidity significantly in the interdealer market, because the electronification of the market is long gone. It’s a very mature market with commoditised repo-busines, trading in many, many billions, hundreds of billions on a daily basis. Where we’re working now to improve liquidity for the buy-side is in the D2C space, where electronification has been much more slowly adopted by the buy-side community, and the more manual approaches of entrenched over many years. So, by introducing electronification simplification, that simple process of automating flows, improves liquidity. And by introducing electronic platforms, you can also introduce further value-added services, such as sponsored clearing services, which also give buy-side better access to more liquidity as well.

Hamish McArthur How can traders handle this?

Tim Martins I think for us it’s been a case of giving the buy-side access to as much liquidity as we can, and for that reason, we’ve built our repo platform, the D2C space, to sit in the same system as our interdealer market, just to allow a flow of information from the sell-side into the buy-side. It’s designed to let dealers show access to their clients, and really then it draws client inquiries to relevant dealers and really helps them to kind of mobilize collateral and extract value and liquidity. I think also, just by automating the full kind of front to back process, so the STPP is incredibly important for us, and I think incredibly important for the dealers as well as for the clients. We have dealers that have told us that they pass on certain client business, because the time cost of actually physically booking the tickets, means it’s simply not worth doing the business. If you put that into an electronic environment where all the tickets straight through process, then you take away that barrier to liquidity. So, essentially by streamlining the process, you’re really giving the buy-side access to a pool of liquidity that simply hasn’t been there from the dealers before.

Hamish McArthur Is there time pressure involved?

Oliver Clarke Yeah, well, from a regulatory perspective, I think that the time pressure is not so much on improving liquidity, although, there’s the argument about fixing the roof while the sun is shining as opposed to waiting for another credit crunch or credit crisis. So, I think possibly the events in the US recently have illustrated that the QE hasn’t entirely solved access to liquidity in the short term. In the sterling markets in recent years there’s also been some significant squeezes. So, I think it is important to improve your processes when there isn’t an issue in the market and then be ready. Having said that, there’s regulatory reasons that are driving people towards this greater efficiency, as well as FTR securities, financing reporting regulations. This begins to kick off in a tiered, phased approach from April of next year. And this will drive buy-side onto electronic venues through necessity.

Hamish McArthur Fantastic. Gentlemen, thank you for being on the show.

Tim Martins Thanks very much.

Oliver Clarke Pleasure.

Hamish McArthur I’m Hamish McArthur. This has been Trader TV at the Fixed Income Leaders Summit in Barcelona. For our other reports from the conference, visit TraderTV.NET, and to find out what’s going on in the ETF business, visit ETFTV.NET. Thank you.