Latest ICMA survey shows European repo market size in excess of EUR 6 trillion

London, UK - 4 October 2006

The International Capital Market Association (ICMA) today released the results of its 11th semi-annual survey of the European repo market. The survey, which is effectively a snapshot of the volume of repo trades outstanding on a single day in June, shows market size standing at over EUR 6 trillion, a 15 % increase from June last year.

The total value of repo contracts outstanding on the books of the 79 institutions who participated in the latest survey was EUR 6,019 billion, compared to EUR 5,883 billion in December 2005 and EUR 5,319 billion in June 2005.

The survey also provided clear evidence of increased interest in tri-party products, with tri-party repos accounting for a record market share of 11.3%, indicating a period of renewed growth, which will reassure those institutions poised to launch tri-party products in the coming months.

The share of the market transacted on electronic trading systems fell back to 21.4%, corresponding to a decline of 11% in the value of outstanding electronic transactions since December 2005, although this retreat has to be seen in the context of large gains made in the last six months of 2005.

The loss of market share for all intermediated business, both electronic and voice- brokered, was matched by a corresponding large increase in market share of repo business negotiated directly between two counterparties, which has risen to 58%.

The growth of directly-transacted business at the expense of electronic and voice-brokered business may be explained by increased position-taking in expectation of interest rate rises.

Commenting on the survey results, Godfried De Vidts, Chairman of ICMA’s European Repo Council said: “Growth of repo continues to be unstoppable with the inexorable move to secured financing driven by the capital adequacy requirements of Basel II. We are seeing continuous innovation in this lively market increasing the diversity of currencies and collateral, with the addition of emerging market securities, distressed assets, and structured and even more unusual assets to the repo mix.’’

The results of the repo survey were presented today at the General Meeting of the European Repo Council, a forum affiliated to ICMA, where the repo dealer community meets to discuss the practical challenges of this rapidly evolving marketplace. Presentations by the European Central Bank (ECB) and European Commission (EC) on clearing and settlement initiatives in the Euro zone were also on the agenda. The repo market requires the cross-border transfer of collateral, on an intra day basis. This process is generally seen as well managed due to close co-operation within repo community between users and infrastructure providers; it could however be streamlined by the introduction of a truly integrated European security settlement infrastructure.

Referring to developments in repo clearing and settlement Godfried De Vidts said: “Repo practitioners and the ERC welcome discussion with the ECB over its proposal to extend its TARGET2 system to securities. We remain deeply convinced that allowing easier transfer of collateral within the euro market and developing the current systems from legacy domestic markets into a true European settlement infrastructure will benefit the wholesale market. ICMA’s TRAX2 pre-matching system designed for managing operational risk in what the latest survey demonstrates remains a predominantly over the counter market is also a very desirable move towards improving the market’s infrastructure”.

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