SIBOS, the 7,000-person strong global conference put on by SWIFT, is mostly about payments and transactional services, but for some time has also been discussing market infrastructure (including CCPs and CSDs). Collateral management shows up on the sidelines; securities lending and repo are rarely present. But we caught one panel in particular yesterday that was quite interesting on the future of market infrastructure. We present below our summary of key points and some feedback of our own.
Even at the once level headed Wall Street Journal, it seems now that any perceived wrong doing by banks is an opportunity for a headline article. This time around the topic is dividend arbitrage in securities lending, which has been flogged, abused and otherwise derided for years. Is it regulatory arbitrage? Of course it is. Is it legal and will be it commonplace until tax authorities harmonize their rules? Yes again. Unfortunately the WSJ has thrown mud into otherwise clearer waters.
The combination of quarter-end and new rules for the Fed’s RRP program were felt in full force today. The $300 bio daily maximum was hit, with $407.167 bio of bids submitted. The market cleared at 0%. The low bid was -0.20%. By limiting the size of the collateral on offer, the Fed pushes cash lenders to be more aggressive in their bidding. Dealer repo markets were zero to negative early this morning although volume was light. The confluence of quarter-end window dressing (the Fed is a great counterparty to have), dealer squeezing down on balance sheets and the change in the rules for the program can make the repo market volatile, with small position shifts creating outsized technically-driven rate swings. The results from the Fed can be found here.
Pimco Total Return Fund reduces cash & repo in favor of futures exposure. Are they feeling the lack of liquidity in repo?Read More
- Stay tuned for upcoming events