Tougher regulation in the repo market

The Basel Committee on Banking Supervision may have recommended a minimum 3% capital holding to cover repo deals but globally regulators now seem to be tightening the rules still further.  Within the past month both the US SEC and European regulators have set out proposals for enhanced ratios and larger capital cushions.

If implemented Basel III proposals would end the practice of banks offsetting repos against reverse repos, potentially making a significant difference to some areas of the balance sheet.  In response to the proposed regulation changes Bloomberg reports that Alex Roever, head of short term finance at JP Morgan Chase, said “The proposals for higher capital and lower leverage won’t eliminate repo, but are factors that will squeeze it.”

Adding to the repo uncertainty the SEC last week urged funds and advisers to review master repurchase agreement documentation with a view to identifying procedures to be taken in the event of defaults.

Whilst none of this signals the end of the road for repo, it does highlight the importance of understanding the implications of and taking appropriate measures to ensure the security of repo agreements.

If you want to learn more about the latest trends in repo you can attend a Eureka Financial course on repo which covers not only the day to day management of the repo market but also takes an overview of the impacts of current regulations and how this may lead to future developments.

Eureka Financial offers over 100 public and in-house training courses in banking and finance, corporate finance and M&A, risk management, operations, investments, wealth management, soft skills and management. For more details visit:

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