Euroclear Repo Access Agreement

Crucially, IHG could outsource many of the operational aspects of Repo`s market participation, namely day-to-day collateral management, while maintaining complete control and visibility and minimizing counterparty and default risks. Heirbaut is confident that the company has opened a new cash investment channel that fits the entire IHG cash management strategy. “Repo offers IHG a highly secure medium-term investment option, which can always be considered a secondary activity for relational banks. Diversification and return are two of the main protagonons for IHG to invest in the pension,” he explains. A lower appetite for repurchase operations among some sales-oriented market players opens up new opportunities for non-traditional players. Consistent with the results of the survey, participants agreed that progress was needed on a number of fronts to address the liquidity challenges of lenders and pension market participants. From greater flexibility in market infrastructures to support cross-border mobilization of collateral, through better credit risk management and cross-sector coordination among market players, to simplified and standardized documentation, the roundtable suggested that the securities financing sector has much to fill, while the wheels of regulatory reform are accelerating. “We increasingly need to collect cash to pay for initial and cash margins to support interest rate swap positions. Our only real option is the reseal market, but we have less reliable counterparties because the banks are either down or down,” he said.

“In the past, the start of a repurchase operation was the cash leg, but there has been a gradual shift that reflects the growing need for companies to move collateral more efficiently, in a world where more transactions need to be secured. Repo cannot be considered in isolation, as it is a collateral transformation mechanism for other markets, as safety is increasingly driving the operation,” said Markouizos. Change may be the only constant for the securities and pension markets, but roundtable participants left delegates cautiously optimistic about their prospects. At the end of the session, 43% said they were optimistic about the future of the repo market, while a third thought they would be negative, with almost a quarter unconsolidated. IHG examined in detail the option of trading in the retirement market by borrowing cash from sell-side equivalents secured by a basket of highly secure securities, using a triparty agent to settle daily security valuations and related transactions. Whether the regulatory storm is over or not, post-crisis reforms have already permanently changed the nature of securities and repo financing markets, said Grigorios Markouizos, Global Head of Fixed Income Finance at Citi. The pension market, once a place where banks met their short-term financing needs, is now practically a forum for the exchange of guarantees for a wider range of market players. This change has been fuelled both by reforms in otC derivatives markets – where security trading becomes mandatory for offset and non-abbreviated transactions – and Basel III.

Heirbaut studied reirbau`s viability with peers, service providers and relationship banks, and he was quickly convinced that it could be a useful tool for very high-risk, medium-term cash investments. IHG then chose Euroclear as a triparty agent based not only on its collateral management capabilities, but also on its established position in the retirement market and its close relationships with market players. Heirbaut explains: “The repo market is still an unusual terrain for many corporate treasurers who consider it to be dominated by the bank and with new and complex work processes and responsibilities.