The ASIFMA-ICMA Guide on Repo in Asia was developed to put forth best practices for the orderly trading and settlement of cross-border repos in Asia in line with internationally recognized standards, and to address impediments to the growth of regional repo markets.
This Guide lays out structural features (such as legal frameworks, settlement systems, and market conventions) that support sound and efficient repo markets, disseminates industry best practices to encourage market practitioners to adopt international standards for the efficient clearing and settling of repo transactions, and encourages reforms to legal and regulatory frameworks that are essential to create an enabling environment for repo markets1.
Understanding repurchase agreements and the repurchase market
Repurchase agreements (or “repos”) – defined in this Guide as classic repos and documented sell/buy backs – are the most widely used form of secured financing transactions. Repo transactions are fully secured and subject to daily margining, which reduces their credit and liquidity risk profiles and substantially lowers the cost of financing for financial institutions. Repos are used to meet financing needs of banks, broker-dealers and non-bank financial institutions, among others. Institutional investors, central banks, endowments, corporate treasurers, banks and other risk-averse investors are the principal providers of cash in repo markets. Although repo transactions have traditionally been short-term instruments, the maturity of repos has been lengthening, particularly “in response to regulatory pressure on banks to lengthen the duration of liabilities.”2
Section I – ASIFMA
Laying the Policy and Regulatory Foundation for Efficient Repo Market Development
Section II – ASIFMA and ICMA
Best Practices across the Repo Trade Lifecycle
1 Eli Remolona, Frank Packer, inter alia, “Local currency bond markets and the Asian Bond Fund 2 Initiative” January 2012, https://www.bis.org/publ/bppdf/bispap63f.pdf, page 46.
2 ICMA, “Frequently Asked Questions on Repo,” May 2015, page 9, http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/short-term-markets/Repo-Markets/frequently-asked-questions-on-repo/.