US monetary markets watchdog to gather information on bilateral repo By Reuters

By Davide Barbuscia

NEW YORK (Reuters) – The Workplace of Monetary Analysis (OFR), a U.S. Treasury Division-based analysis powerhouse, mentioned on Monday it has adopted a closing rule that can permit it to gather information on sure transactions within the repurchase settlement (repo) market.

Most hedge fund exercise in repo markets – the place banks and different gamers akin to hedge funds borrow short-term loans backed by Treasuries and different securities – is finished bilaterally between brokers and clients.

By establishing information assortment for non-centrally cleared bilateral transactions, regulators need to enhance visibility into this opaque however important funding marketplace for Wall Road.

“The collected information might be used to help the work of the Monetary Stability Oversight Council, its member businesses, and the OFR to establish and monitor dangers to monetary stability,” the OFR mentioned in a press release.

“The OFR’s everlasting information assortment will shine a highlight into this opaque nook of the monetary market, present high-quality information on (non-centrally cleared bilateral repo) transactions, and take away a big blind spot for monetary regulators,” it mentioned.

The rule, which turns into efficient 60 days from Monday’s publication, establishes two classes of firms topic to reporting, a timeline for the submission of knowledge and a lot of particular information components required to be reported.

The announcement coincides with a broader regulatory effort to comprise potential episodes of stress within the $27 trillion U.S. authorities debt market – a constructing block of the worldwide monetary system.

Specifically, regulators have zeroed in on the premise commerce, a preferred hedge fund arbitrage buying and selling technique in Treasuries which is basically financed by way of bilateral repo offers. The unwinding of this commerce is believed to have worsened market stress on the top of the COVID-19 pandemic in March 2020.

In December, the U.S. Securities and Trade Fee permitted a key reform to spice up using central clearing for U.S. Treasuries which is able to apply to the money Treasury and repo markets. Extra centrally cleared trades may scale back the danger of disruption to counterparties brought on by a fast unwinding of hedge funds’ leverage, analysts have mentioned.