The ESMA market report on EU securities financing transactions (SFT) markets provides first comprehensive market-level overview of the EU repo market, based on information reported by market participants. It contributes to ESMA’s financial stability objective, by monitoring repo market developments and providing key risk metrics for its monitoring framework on securities financing transactions.
The main findings of the report are:
SFT markets overview: The total outstanding exposure of SFTs was EUR 9.8tn in September 2023. Repos accounted for EUR 6.7tn or 68% of the total, securities lending for EUR 2.3tn (23%), buy-sell back for EUR 743bn (8%), and margin lending for EUR 124bn (1%).
Repo market participants: Banks are the major participants in repo markets with 52% of repo amounts, and are predominantly concentrated in a few EEA jurisdictions, with France as the primary domicile holding 55% of EEA repo borrowing and 53% of EEA repo lending in September 2023. Other main countries include Germany (17% borrowing / 19% lending), Italy (7% borrowing / 5% lending) and Ireland (5% borrowing / 6% lending).
Cross-border linkages: 41% of the repo amounts observed are between EEA counterparties. Links with the UK are strong, with EEA repo borrowing from the UK amounting to 12% of repo amounts, and EEA lending to the UK to 9%.
Clearing & settlement: 61% of repo transactions are uncleared, with 55% processed bilaterally and 6% managed with a third-party.
Repo collateral use: Government bonds are the main collateral employed. The cleared segment predominantly makes use of EEA sovereign bonds (88% of collateral), while the non-cleared segment features slightly more collateral heterogeneity (79% of sovereign bonds as collateral).
Repo haircuts: Since CCPs collect margin at the portfolio level using proprietary risk models, cleared repos often report zero haircuts at the transaction level. This contrasts with higher haircuts in non-cleared transactions, especially when involving a more diverse pool of asset classes. Non-cleared repos backed by government bonds often display no haircut.
The Securities Financing Transactions Regulation (SFTR) created a Union-wide framework under which details of SFTs can be efficiently reported, responding to the need to enhance the transparency of securities financing markets. ESMA will continue to monitor and analyse risks in SFT markets.
