Matched book repo trading desk

This ones many, many years in the future, right here in what used to be the good ol u. Open repo is an overnight repo whose term is renegotiated on an ongoing basis. I cannot imagine a more perfect cover for this book. A situation in which the funds a bank or brokerage has borrowed equal the funds it has lent to customers, where both borrowed and lent funds have the same maturity. Build up the repo trading desk to optimize the secured funding capacity and establish repo market making business offered to clients across hk, cn, sg, tw. Dealers typically run matched books, taking both sides of a trade and serving as an intermediary between their clients and large cash pool investors.

The novel is a dystopian young adult novel about a tightlycontrolled society in which young people are matched with their life partners at the age of 17. In the fixed income market, these transactions are accomplished with the use of the repo market. Jan 23, 2018 i began in it, moved on to overnight repo trading, then to term repo trading, risk management, and sales trading management, for brokerdealers and their repo matched book operations in the us, canada, and europe. An active repo market is therefore a prerequisite for liquid markets in derivative instruments.

Eric li, cfa fixed income repo trader clsa linkedin. Paired repo and reverse trades on the same underlying collateral, perhaps mismatched in maturity. Jvbs repo desk is comprised of seasoned repo operators that have run successful trading. To address potential stress around the september quarterend, on friday, september 20, the desk announced a schedule of term and overnight repo operations spanning september quarterend. Most repo trading occurs early in the morning and was already completed by the time. He was also cohead of all fixed income and a member of the management committee. Over 25 years experience in fixed income trading and securities risk analysis. I began in it, moved on to overnight repo trading, then to term repo trading, risk management, and salestrading management, for brokerdealers and their repomatched book operations in the us, canada, and europe. I dont work in prime brokerage but ive had a very short stint on this desk during an internship. An introduction mark fisher the author is a senior economist in the financial section of the atlanta feds research department. The aim of this book is to help those needing basic information on repos to gain. Determinants of the repo rate in global money markets. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day.

The first book in a young adult dystopian trilogy published by dutton books. Agency matched book repo desk provides cost effective leverage capability via the repo financing markets to reits, insurance companies, banks, and other institutions that are looking to improve their costs of funding, liquidity, and yield enhancement. Its the story of cassia reyes, a 17 year old girl living in. Jun 16, 2019 a reverse repurchase agreement, or reverse repo, is the purchase of securities with the agreement to sell them at a higher price at a specific future date. A trading book consists of positions in financial instruments held either with trading intent or in order to hedge other elements of the trading book.

A repurchase agreement, also known as a repo, rp, or sale and repurchase agreement, is a form of shortterm borrowing, mainly in government securities. The lenders cant lend directly to the borrowers because the lenders are, for example, money market mutual funds that have prospectus limitations requiring them to lend only. Effect on the cgf repo market the gcf repo market is the main funding source for some dealers who cannot obtain the funding they want in the tpr market instead of borrowing directly from tpr cash investors, they borrow from large dealers who borrow from tpr investors matched book. The volatility of the volker days was in full swing and the very idea of trading a matched book was novel. Initiated the new strategies which generated a return on capital at 42% out of the matched book totaling usd 800 million from the spread of marketmaking borrowing and lending by.

Effectively, the bank repo desk is the pump that makes the repo market flow, while generating reliable, lowrisk revenues for its bank. The repo desk, your new best friend forever ftse global markets. Attempts to establish new derivatives markets, exchangetraded or overthecounter otc, have foundered where there have been no active repo markets to facilitate basis trading, hedging, arbitrage and pricing. I found myself on a great desk with some of the best and nicest people you will ever meet in the industry. Understanding repo and the repo markets 6 euroclear march 2009 between the sale and the repurchase. Consequently, for three out of the four cases described above, we expect the matchedbook trading strategy executed by the new repo participants to result in at least one repo or reverse repo occurring in the interdealer market. While overnight markets stabilized, trading volumes in term repo markets remained low, and rates were elevated and dispersed. Reverse rps and matched book transactions major dealers commonly use. A matched book methodology is a way of cutting down on spread risk, which is the potential for there to be a change in value between the expected price of a credit risk and the actual market price of credit risk. Why banks didnt lend to the repo market when rates blew. Understanding repo and the repo markets euroclear march 2009 1. The barclays capital repo team includes desk trading in 12 currencies and the emerging markets with offices located in london, tokyo, paris and new york ensuring full coverage of the global repo and securities lending markets. After trading and selling for 26 years for a matched book repo desk, intermediating trades with clients on both sides and managing the risk for the brokerdealer, it becomes a very familiar comfort zone. Issues continue to trade on special and profit opportunities for matched book trading remain.

From 1988 to 1999, terry was with daiwa securities america. Currently, i deal on a global basis, but as an introducing broker for institutional clients and brokerdealers. The main character is seventeenyearold cassia reyes, who is matched with her best friend, xander carrow. Hi folks, i am really passionate about sellside repo trading desk. Its not surprising that the technology behind repo was fairly basic in those days. Measurement and capital adequacy market risk page 2081.

To be eligible for trading book capital treatment, financial instruments must either be free of any restrictive covenants on their tradability or able to be hedged completely. But most teen readers will agree that author condie has crafted a fine addition to the genre. The seller gets the use of the cash proceeds of the sale of the assets. Securities lending times jeffrey kidwell of direct repo. The more profitdriven a repo desk appears to be, the more likely it will separated from treasury, as treasurys mandate of funding the bank is not profitdriven. A dealer runs a matched book by simultaneously entering into a repo and a reverse repo for the same collateral with the. To me, the image is a clear representation of cassia, the main character, and the way she is trapped in her world. Matched invites comparisons to the giver and brave new world, and some science fiction fans may rightly complain that its derivative. A long time ago, in a galaxy far, far away wait, wrong story. A repurchase agreement, or repo, is a sale of securities for cash with a commitment to repurchase them at a specified price at a future date. Repo funding and matched book trading govt, corp and abs, eonia and sonia swaps, stir futures, cash bonds and cd cp. I went to morgan stanley in ny right after i graduated from stanford. Repo and securities lending markets provide attractive options to both the cash investor and.

In accordance with the most recent federal open market committee fomc directive, the open market trading desk the desk at the federal reserve bank of new york will conduct a series of overnight and term repurchase agreement operations repos to ensure that the supply of reserves remains ample and to support the smooth functioning of short. In a different context, specifically in repo transactions. In general, trading book boundary rules restrict banks to transfer instruments between trading and banking book, specially for the regulatory arbitrage purposes. The repo market 2 repos we often talk about buying and shorting securities. A reverse repurchase agreement, or reverse repo, is the purchase of securities with the agreement to sell them at a higher price at a. Figure 5a illustrates a traditional matchedbook trade, where b represents a dealer. Determinants of the repo rate in global money markets determinants of the repo rate in global money markets courses with reference manuals and examples pdf. There is some good explanation of how a banks repo trading desk works.

A look at recent sec action concerning market manipulation, broker bribery, and matched trades. The future of wholesale funding markets bny mellon. Matched, by ally condie, is the first novel in the matched trilogy. Of course the counterparty is either one or the other, opposite to your position. The dealer sells the underlying security to investors and, by agreement between the two parties, buys them back shortly afterwards, usually the following day, at a slightly higher price. Matchedbook repo trading is a lowmargin, balance sheetintensive business, however meaning it was one of the first areas to be cut when the us supplementary leverage ratio slr was introduced in september 2014. Lou paturzo senior vp helix financial systems linkedin. Bond market intermediation and the role of repo yesol huh and sebastian infante 2017003. Market manipulation, broker bribery, and matched trades. It intermediates between lenders and borrowers, keeping a matched book like a sports bookie. Repurchase agreement operational details federal reserve. The concept of a matchedbook trade follows closely to that of a broker who takes both sides of an active trade, essentially having no market risk, only credit risk. Otherwise the agreement is a term repo the term can be as long as one year.

A matched book is one way a financial institution can reduce its risk because a matched book does not add to. The entity from which dealer b borrows cash, a, is different from the entity to. The fed what happened in money markets in september 2019. Initiated the new strategies which generated a return on capital at 42% out of the matched book totaling usd 800 million from the spread of marketmaking borrowing and lending by gc and specials repo trading. Repo can take the form of either repurchase agreements or buysellbacks, which do the. During the 1980s and early 90s, repo was still a new product. This is important, as the reality is that matchedbook repo.

Consequently, for three out of the four cases described above, we expect the matched book trading strategy executed by the new repo participants to result in at least one repo or reverse repo occurring in the interdealer market. Only the fourth case, which is an unusual case for smaller dealers, occurs without any interdealer trades. He represented the firm at the bond market association and the federal reserve bank of new york. The repo desk, your new best friend forever ftse global. The technique is used to beautify a variety of objects such as. But inevitably, the repo matchedbook will be a complex portfolio of maturity and credit mismatches, which the repo trader will aim to manage, adroitly and profitably. Repos are just extremely short term loans overnight loans. Hence matched repo transactions, like that in the example, would.

In a different context, specifically in repo transactions, a matched book can take. A bank is running a matched book when the maturities of its assets and liabilities are equally distributed. Most banks run a matched book with equal amounts of repo and reverse repo. While the relationship between unsecured and secured funding has broken down at lower bound, treasury and repo are similar in most respects. These traders have been traditionally known as matchedbook repo traders.

But inevitably, the repo matched book will be a complex portfolio of maturity and credit mismatches, which the repo trader will aim to manage, adroitly and profitably. The repo desk, your new best friend forever thursday, 03 january 20. The importance of the repo desk has moved up a gear, due to the regulators enthusiasm for margining, likewise a typical collateral management team may well find itself pushed towards or merged into that business line. The vast majority of repos have maturities of three months or less. European banks, which operate under less stringent leverage rules, have filled the void. Questions to think about how will the trading desk structure under frtb would differ from the existing volcker trading desk structure. Oct 21, 2014 ally condie, matched i think matched is absolutely brilliant.

Responsible for the day to day activities relating to all of the firms funding needs across europe in fixed income. The desk did not have a dedicated repo sales person, so i assumed and developed a sales and trading role. Jan 03, 20 the decision on how to fund a margin call is now migrating to the repo desk, as it is best placed to understand cost implications, and can also decide what parts of a bond inventory can be delivered as collateral. Anja hinds director, hybrid idb esales bgc partners. Aug 07, 2016 questions to think about how will the trading desk structure under frtb would differ from the existing volcker trading desk structure at banks. Matchedbook repo and the continued shadow crunch ft alphaville. Matchedbook repo and the continued shadow crunch ft.

For the party selling the security and agreeing to repurchase it in the future, it is a repo. Whats it like to be an interest rates trader at an. Why banks didnt lend to the repo market when rates blew out. However, given that funding is usually the driver of matched book repos, it is not clear whether it. The new york fed has been working with triparty repo market participants to make changes to improve the resiliency of the market to financial stress. Complete and unabridged, the books revolutionary landscape design and ultrathin paper makes it easy to hold in one hand without sacrificing readability. Ally condie, matched i think matched is absolutely brilliant. The barclays capital repo team includes desk trading in 12 currencies and the emerging markets with offices located in london, tokyo, paris and new york ensuring full coverage of.

Effect on the cgf repo market the gcf repo market is the main funding source for some dealers who cannot obtain the funding they want in the tpr market instead of borrowing directly from tpr cash investors, they borrow from large dealers. A matched book is one way a financial institution can reduce its risk because a matched book does not add to its liabilities. Bookmatching is the practice of matching two or more wood or stone surfaces, so that two adjoining surfaces mirror each other, giving the impression of an opened book as applied to wood, bookmatching is usually done with veneer produced in one of several ways, but can also be done with solid wood. The cover for matched is so eyecatching and mysterious.