2013-01-10-奥纬咨询-Going_Secured_40页_491kb

Summary of "Going Secured: Trends in European B2C Secured Money Markets"

Core Content

This report explores the evolution and growth of the European secured cash investment market, focusing on the relationship between banks and their non-bank clients. It highlights the increasing importance of secured cash investments as a result of the global financial crisis and outlines the key trends and drivers shaping this market.

Main Points

1. Overview of the Secured Cash Investment Market

• Definition: Secured cash investments are repurchase agreements (repo) where non-bank clients provide cash to banks in exchange for collateral (e.g., government bonds), typically with a maturity of less than one year.
• Market Growth: Over the past five years, secured cash investments have grown substantially in all major European markets, with an overall annual growth rate of approximately 10%.
• Shift in Trust: The financial crisis, particularly the collapse of Lehman Brothers, eroded trust in banks as safe havens for cash, prompting non-banks to seek more secure investment options.
• Non-Bank Demand: Non-banks, especially corporates, have accumulated excess cash due to economic uncertainty and a desire for risk mitigation. This has led to a greater reliance on secured cash investments.

2. Growth Drivers

The report identifies four main drivers of growth in the secured cash investment market:

• Trust Issues in Bank-to-Client Markets: Following the financial crisis, non-banks have become more cautious about depositing cash with individual banks.
• Excess Cash at Non-Banks: Non-banks, particularly corporates, have increased their cash reserves, seeking secure short-term investments.
• Reduced Interbank Liquidity: Banks have become more hesitant to lend to each other, reducing interbank liquidity and forcing them to seek alternative funding sources.
• Changing Regulatory Environment: New regulations such as EMIR, Basel III, Solvency II, UCITS VI, and CPSS-IOSCO have encouraged collateralisation and central clearing, making secured cash investments more attractive.

3. Secured Offerings and Their Evolution

Secured cash investments are executed through reverse repos. Over time, repo structures have evolved into three main types:

• Bilateral Repo: Direct agreements between two parties (non-bank and bank). These are operationally complex and less common today.
• Tri-Party Repo: An independent third party manages the collateral, reducing operational burden and risk for both parties.
• Cleared Repo: Involves the use of a central counterparty (CCP), which acts as an intermediary, further reducing risk and capital requirements.

The trend has shifted from bilateral to tri-party and cleared repos, especially in the interbank market, where CCPs are increasingly used. This trend is expected to extend to non-bank clients, offering new opportunities for market participants.

4. Perspectives of Non-Bank and Bank Participants

• Corporates: Use cash investments to meet short-term obligations and manage excess liquidity.
• Insurance Companies: Seek liquidity to cover unforeseen losses, such as natural disasters, and are influenced by Solvency II regulations.
• Pension Funds: Manage liquidity to fund retirement plans and ensure financial stability.
• Asset Managers and Mutual Funds: Use cash investments for liquidity management and to finance redemptions.
• Hedge Funds: Employ cash investments as a buffer against redemption risk.
• Banks: Require liquidity for operations and regulatory compliance, and are increasingly turning to non-bank clients for funding.

5. Outlook and Conclusion

The report outlines four major trends expected to shape the secured cash investment market in the coming years:

• Liquidity and Capital Management Pressures: New Basel III regulations will increase the use of secured cash investments as a means of managing liquidity and capital.
• Shift to Standardised Markets: Increased regulatory transparency and competition will drive the adoption of standardised and electronic trading platforms.
• Integrated Treasury Solutions: Treasury departments will adopt more sophisticated tools to manage cash and collateral in standardised markets.
• Global Collateral Pools: The demand for fungible and globally accessible collateral pools will rise, allowing more efficient allocation of scarce collateral.

These trends are expected to lead to a step change in the secured cash and collateral market, with secured cash investments becoming a core instrument for non-banks. Opportunities for market infrastructure providers, such as CCPs and exchanges, will grow as they open up their pooled collateral solutions to non-banks.

Key Takeaways

• Secured cash investments are becoming increasingly important for non-banks due to trust issues, excess cash, interbank liquidity constraints, and regulatory changes.
• The shift from bilateral to tri-party and cleared repos is driven by operational efficiency and risk reduction.
• Regulatory frameworks such as Basel III, Solvency II, and UCITS VI are playing a crucial role in promoting secured cash investments.
• Future developments will focus on standardisation, integration of treasury functions, and the emergence of global collateral pools, which will benefit all market participants.

Conclusion

The secured cash investment market in Europe is undergoing significant transformation, driven by both market forces and regulatory developments. As non-banks seek safer and more diversified investment options, and banks face liquidity and capital management challenges, the role of secured cash investments is set to expand. This will create new opportunities for market infrastructure providers and lead to a more integrated, standardised, and transparent market structure.