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European repurchase market hits record trading volume

The European repurchase market, which is considered vital to the functioning of the financial markets, hit record trading volumes in June, the Financial Times reported September 15.

The value of the repo market was up 25 percent, to €7 trillion or $8.4 trillion, from December, according to the International Capital Markets Association which surveys the European repo market twice a year. Respondents report both repo loans and borrowings, which means volumes are inflated by some double counting.

The recent low for the market was €4.6 trillion December 10, 2008. The prior high was €6.8 trillion on June 13, 2007.

From the Financial Times story:

The repo market, which involves raising cash in the market by banks through exchanging mainly government bonds as collateral, is regarded as the plumbing system of the financial system. This is because it is the most widely used way for banks to raise money to fund their daily operations, make loans and balance their books. Without the repo market, the financial system would grind to a halt….

The ICMA survey showed that 10 financial institutions accounted for 68 per cent of the total business in European repo.

ICMA said the concentration of contracts in these institutions was “well above the historical norm” for the survey that started in June 2001.

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