Fitch: Corporate Treasurers Increasing Use of Repo to Manage Cash

28/05/2014

European corporate treasurers are increasingly considering repos as a cash management tool whether directly or through pooled vehicles such as money market funds (MMFs), says Fitch Ratings in a new report.

In economic terms, a repo is comparable with a collateralised loan or secured deposit. One party buys securities from another party, which then agrees to buy those securities back at a future date.

Accordingly, repos provide users with access to short-term funding in exchange for assets or the ability to place short-term cash on a secured basis. This acts as a liquidity management tool and serves an important cash management role.

Repos provide a double indemnity against credit risk. If the counterparty defaults then the other party has recourse to the collateral. Margin is posted and maintained, mitigating the risk of mark-to-market losses.

Global Master Repurchase Agreements (GMRAs) govern repos. Operational complexity and the need to implement a GMRA, despite their standardisation, may deter some users from directly transacting in the repo market. For these users, other vehicles that do transact in repos, such as MMFs, can provide indirect access.

Fitch notes that the European repo market is substantial. The total outstanding amount of repos in Europe was EUR5.5trn in December 2013 according to ICMA. The European repo market is overwhelmingly bi-party (transacted between two parties). This contrasts with the US market, where repos are predominately tri-party, whereby the securities are held by a custodial bank.

The full report ‘Primer: European Repo in Cash Management’ is available at http://www.fitchratings.com.
It provides treasurers and other market participants with a guide to the mechanics and usage of both bi- and tri-party repos.

Fitch Ratings Limited
fitchratings.com

Les médias du groupe Finyear

Chaque jour (5j/7) lisez gratuitement :

Le quotidien Finyear :
– Finyear Quotidien

La newsletter quotidienne :
– Finyear Newsletter
Recevez chaque matin par mail la newsletter Finyear, une sélection quotidienne des meilleures infos et expertises de la finance d’entreprise et de la finance d’affaires.

Chaque mois lisez gratuitement :

Le magazine digital :
– Finyear Magazine

Les 6 lettres digitales :
– Le Directeur Financier
– Le Trésorier
– Le Credit Manager
– Le Capital Investisseur
– GRC Manager
– Le Contrôleur de Gestion (PROJET 2014)