FICC dominates US Treasury repo in Q2

The Fixed Income Clearing Corporation (FICC) was counterparty to $449.7 billion of US Treasury repos with money market funds (MMFs) over the course of Q2 2019, 20.4% of the total. The year-ago quarter, its total trade volume was $120.6 billion (6.6%) and just $5 billion (0.3%) in Q2 2017. 

The Federal Reserve was party to just 2% of all trades in Q2 2019, compared with 6.8% a year ago and down from a peak of 62.7% in Q1 2015. 

US Treasury repos with MMFs totalled $2.2 trillion over Q2, up 14.6% on the previous quarter and 20.9% on Q2 2018.

Royal Bank of Canada claimed the largest share of US government agency security repos with MMFs in Q2, conducting $169.1 billion, 13% of the total. This was flat on its year-ago quarter share. Funds managed by Fidelity were its largest counterparty, accounting for $42.8 billion of trades.

JP Morgan accounted for a 10.2% share, up from 5.1% a year prior, and BNP Paribas 8.7%, up from 8.2%. Their largest counterparties were funds run by Fidelity and JP Morgan, respectively.  

US agency security repos with MMFs totalled $1.3 trillion over Q2, up 3.6% on the previous quarter and 23.2% the year-ago quarter.

In other repos, trades backed by collateral other than US Treasuries or agency debt, Wells Fargo dominated. The bank conducted $21.8 billion of trades, 16.2% of the total, up from 8.3% the year-ago quarter. Funds managed by Fidelity accounted for $4.4 billion of these. 

Societe Generale accounted for 11.9%, down from 12.6% and BNP Paribas 10.9%, down from 12.3%. Their largest counterparties were funds run by JP Morgan and Schwab, respectively.

Total other repo trades with MMFs amounted to $134.8 billion, up 13.4% on Q1 2019 and 22.6% on the year-ago quarter.

What is it?

The US Office of Financial Research tracks MMFs investment portfolios by asset type, country and counterparty, among others. 

The repo data is aggregated and mapped by the OFR from monthly schedules of MMF portfolio holdings filed with the Securities and Exchange Commission, known as Form N-MFP2s.

Why it matters

FICC’s entry into the US Treasury repo trade has been a game-changer. In May 2017, the firm began allowing banks to sponsor MMFs and buy-side participants onto its cleared repo platform.

FICC listed 1,769 sponsored members as of July 11. Why have they flocked to the platform? Simple – cleared repo trades can generate higher returns for MMFs. 

Cleared repos also offer relief to banks, as bunching trades with FICC allows them to net down offsetting positions, reducing their balance sheet consumption and associated capital requirements.

This frees banks to devote more balance sheet to less conventional forms of repo using different collateral types, which can yield higher returns.

Correction, October 24 2019: An earlier version of this article incorrectly stated the total amount of other repo trades for Q2 as $1.3 trillion

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