Thursday, February 4, 2016
Author: David Schwartz J.D. CPA
The Office of Financial Research released results of its survey of the bilateral repo markets. The report, "The U.S. Bilateral Repo Market: Lessons from a New Survey,” provides aggregate statistics on U.S. dealers’ bilateral repo agreements and economically equivalent securities lending activities. The data for three "snapshot" dates in 1Q2015 were collected from the U.S.-affiliated securities dealers of nine bank holding companies as part of a voluntary pilot program run by the OFR and the Fed with input from the Securities and Exchange Commission. Among other things, the data collection found that: (1) the majority of repo activity involves the delivery or receipt of U.S. Treasuries, with equities a distant second; (2) the most common maturity is one day; and (3) rates are widely dispersed across asset classes.
The report estimates the size of the U.S. bilateral repo market at about $1.8 trillion in repos and $3 trillion in reverse repos, with the pilot program’s participants accounting for about half of both repos and reverse repos. The pilot participants, on average, financed about $960 billion in the bilateral repo market and provided about $1.6 trillion in funding to their clients.
The authors noted some challenges with data collection, stating that lack of standardization of data from participant to participant hindered their analysis and may have affected the quality of their findings.
"Given the voluntary nature of the pilot, the collection attempted to leverage the participating firm’s internal reporting systems, rather than impose external requirements. The lack of data standards undermined the quality of the data we received. In particular, a lack of standardized counterparty information, such as a legal entity identifer (LEI), limited our ability to analyze market interconnectedness because the same firm had different names in dealers’ reporting systems."
The difficulties encountered with consistency and quality of repo and securities lending data, say the authors, demonstrates the importance of broad implementation of the Financial Stability Board’s (FSB) Standards and Processes for Global Securities Financing Data Collection and Aggregation, finalized in November 2015. The authors further anticipate that the experiences they gleaned from conducting the bilateral repo survey would aid the FSB in further refining the granularity of securities financing data standards.
"To close this data gap, financial regulators are working together to develop a permanent granular data collection of bilateral securities financing trades, building on the lessons learned from this pilot data collection. Reporting definitions, concepts, and requirements should be consistent with collections covering the triparty repo segment. Mandatory data standards would reduce reporting burdens and improve data quality. U.S. regulators are working with international regulatory bodies such as the Financial Stability Board to harmonize reporting definitions, concepts, and requirements."
The OFR, Fed, and SEC also are now conducting a second pilot data collection focusing on the securities lending market, focusing on non-dealer participants
 Treasuries were used for collateral in 61.4 percent of repos and 81 percent of reverse repos, with equities the next most common collateral type at 21.1 percent and 15.3 percent, respectively.