Repo Markets Across the Atlantic: Similar but Unalike

Abstract

This paper sketches the key differences in the EU and the U.S. repo markets to inform the policy recommendations for harmonization and standardization of rules governing repo contracts put forward by the international financial fora and standard setters. In so doing, it examines three main aspects of the repo markets. First, it highlights the differences in the legal framework governing repo markets, such as legal construction of repo contracts, special insolvency treatment, and legal treatment of the reuse of collateral. Second, it discusses the composition, structure and organization of the repo markets, such as differences in the composition of repo participants, maturity of repos and the composition of the underlying collateral in repo contracts. Finally, it investigates the differences in the issues related to the market infrastructure of repo markets such as differences in the clearing and collateral management stages. The main finding of this paper is that in spite of significant efforts to standardize and harmonize repo markets as well as their applicable legal framework in the past, there remains significant differences across the Atlantic. Such differences in the legal framework, composition, structure and organization of repo markets and repo markets infrastructure would require differential and more nuanced approach to regulating repo markets than what is pursued by the current international financial standard setters.