BrokerTec and MTS to develop euro repo index series

The series will include an index for each of the sovereign bond markets of Germany, France, Italy, Spain, Austria, Netherlands, Belgium and Finland and will be launched in Q4 2012.

The index calculation and design has been established following significant market interest and demand and is supported by a group of repo dealers representing several major financial institutions. BrokerTec and MTS intend to establish an advisory group to ensure the indices remain current reflecting any change in market conditions. Discussions are progressing with a third potential partner who has an established presence in the repo sector to further increase the robustness of the index.

Repo transactions are used for borrowing and lending on a secured basis and for financing and covering bond positions. Overall daily volumes in eurozone sovereign repos typically exceed €300 billion (single count). The indices will be calculated with one-day repo transactions, which represent the bulk of trading activity. By using aggregated data from real repo transactions over each trading day, the index will represent the volume-weighted effective funding rate for eurozone sovereign bonds issued by these countries.

Commenting on the new index series as a key supporter, Romain Dumas, Managing Director of EMEA short term government products at Credit Suisse said: "We welcome this development. In early discussions we have been encouraged by the enthusiastic support shown by the repo community in helping to develop this index as well as by the interest emanating from the derivatives desks. We are optimistic for its potential to accurately reflect the secured cost of funding in each of the main eurozone markets."

Stefano Bellani, head of repo financing in EMEA at J.P. Morgan, said: "This new index will be backed by traded volume, executed on electronic trading platforms and cleared via central counterparties rather than based on indicative quotes and this could potentially become a benchmark fok for secured funding rates across Europe."

John Edwards of BrokerTec said: 'With the divergence of eurozone markets and macro-economic issues affecting the European Government Bond market, developing an index that provides a cost of funding reference for sovereign bonds has considerable interest and demand from various sectors of the markets.''

Oliver Clark of MTS said: "This new index series is being launched at a time when the focus on transparency in repos and the importance of secured investment and funding are stronger than ever. The unparalleled transparency of these new daily fixings will provide confidence to repo participants and investors in both benchmarking and in the issuance and management of financial products referenced to the index series."

Background

ICAP Brokertec and MTS are electronic platforms for cash bond and repo transactions that together account for €250 billion plus of euro zone sovereign bond repos per day (single count).
The new Repo Index is based on Overnight, Tom-Next and Spot-Next repo transactions involving eurozone sovereign bond markets.