“Many factors” — but particularly the new margin requirements for over-the-counter (OTC) derivatives—are driving the trend.
The rules, introduced by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) that require non-cleared OTC derivatives business to post and collect initial margin, are “driving dealers and clients to look for an electronic solution for repo trading”.
It’s not just new regulations that are pushing the market toward electronic trading. The International Capital Market Association reported in June that the changing nature of the underlying market, with a trend toward smaller trade sizes and more rapid turn-over of dealer positions, is making sourcing supply more difficult.
“Buy-side clients are facing increasing pressure to prove best execution, and to optimise the performance of their portfolios.” said Bruni. “On the sell side, firms have fewer resources at hand and are looking for efficiencies in order to sustain the business.”
Bruni argues that historical repo trading resources have been detrimental to the industry but electronical repo trading “is changing that dynamic.”
The full interview with Enrico Bruni will be available to read in the next issue of Asset Servicing Times, published on 8 August.