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Repo goes from boring to hip

Back in February 1997 repos were going “global and hip,” according to DerivativesStrategy.com, an online publication that covered the derivatives market from 1992 to 2001.

Bloomberg screens had started carrying repo prices, repo markets were opening around the world, and repurchase agreements were favorite tools of the hippest derivatives traders.

From DerivativesStrategy.com:

It’s official. Repo now has respect. It’s now a truly international product, traded on a 24-hour global basis. And the financial markets couldn’t function without it.

Countries that have allowed unrestricted repo trading in the last few years-the United Kingdom, Germany, Spain, Denmark and Sweden-have witnessed the benefits of bond and derivatives markets that function more efficiently and increased international interest in their securities.

Who uses the repo market?

The customers driving the growth in the repo market today are the hedge funds … and what hedge funds want is exotic over-the-counter transactions. A leveraged investor can’t do one of these trades without repo.

A bank can’t run an efficient over-the-counter options desk without a top-flight repo business, because often the pricing on these deals rests on the implied repo rate.

So the last year, in particular, has seen symbiotic growth in both businesses for banks across the world.

In addition, repo was an integral part of proprietary trading and market-making at broker-dealers and investment banks around the world.

Check out the article, for a view inside the world of repo in 1997.

 
 
 

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