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Markit to offer US tri-party repo data
19 March 2013
Markit's David Carruthers sees the securities lending and repo markets moving closer together in response to collateral demands. Stephanie Baxter reports
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Markit Securities Finance has entered into a deal with BNY Mellon to give clients access to US tri-party repo data and analytics.
The data analytics firm has integrated aggregate tri-party US dollar repo data and position updates from BNY Mellon into the reports and analysis it provides to clients.
Markit said the move is a response to the potential collateral shortfall arising from the requirements to post collateral to central counterparties (CCPs) and the US Tri-party Reform Infrastructure Reform.
The firm aims to provide clients with a greater insight into the repo and collateral markets and promote better transparency and price discovery.
According to Markit, this is the first time its clients will be able to see aggregated US tri-party data at a granular level and will be able to have a clearer look into maturities, haircuts, collateral type and collateral quality. Collateral and fund managers will have access to a “comprehensive dataset”, the firm added.
Speaking to Global Investor/ISF, David Carruthers, managing director of Markit Securities Finance, said the new service can help fund managers with their collateral decisions. Collateral management is fast becoming an important strategy in light of new regulation in the US, Europe and Asia pushing OTC derivatives onto central clearing.
“Collateral managers and fund managers can look at stock loan rates and repo rates which puts them in a position to decide if they will post their available bonds as collateral, lend them out or use them in the repo market to generate cash? There is a series of interconnected decisions that a collateral manager has to make. The repo rate helps you to calculate the cost of carry, which shows whether your collateral management decisions will cost you money or make you money.”
Carruthers added that data will be central to collateral transformation trades: “Data on repo rates and flows are the building blocks in collateral transformation swaps which can be two back-to-back repo transactions.”
Caruthers said the securities lending and repo desks are coming closer together as banks need to look across all their collateral pools and optimise them. One recent example is BNY Mellon's new business division called Global Collateral Services, which brings its broker-dealer collateral management, securities lending, collateral financing, liquidity and derivatives services teams under one umbrella.
He said: “In the past stock loan and repo were managed very separately, but now a lot of banks and insurance companies are beginning to put these under one roof. It’s the way a lot of the banks are going and the driver is regulation. Everyone has to understand where they are with their collateral and look at all the different moving parts to ensure they aren’t paying more for their collateral than they need to.”
Markit expects that a lot of these new collateral desks will be a “potential new client base” for the firm, added Carruthers.
As a first phase, Markit will offer API Excel beta trials to securities lending clients and repo market makers, who “know this market well and are in a position to tell us if we’ve got it right”, said Carruthers.
The second phase will be to offer a web-front end to a broader audience including collateral managers, corporate treasurers, money market fund managers and risk managers. This phase will launch in a couple of months.
The product is being modelled along similar lines to Markit's securities lending data product.
The firm has ambitions to develop similar partnerships to its new one with BNY Mellon in order to expand its repo data service.
Carruthers said: “We have clients who deal in the bilateral as well as tri-party repo market that already give us stock loan data, so they could be giving us more. We’re happy to talk to anyone who would like to get involved with us in the repo data business.”
“We anticipate making similar steps either with existing clients or potentially new data sets and new data contributors.”