Eurex Clearing, Eurex, Eurex Repo
Being successful in the financial markets for 20 years is a very good reason to pause for a moment and look back on how it all started. Today, Eurex Repo is a well-established and leading provider, operating several markets with a multitude of products in secured funding and financing. But how was it twenty years ago; how did it all begin? How has it developed and what will the challenges be in the coming years?
In 1999 Marcel Naas, today Managing Director of Eurex STS, was working closely with the Swiss Stock Exchange on an electronic repo solution for the Swiss Franc market when he discovered, that there was nothing comparable for Germany or Europe. He immediately received strong support for the idea that the unsecured money market should be secured by collateral, automated and standardized.
2001 finally saw the start of an electronic market using Eurex Clearing to clear repo. The whole development was done in close coordination with German market participants in order to begin the initiative, first in Germany and then gradually roll it out in Europe.
As with many new, innovative ideas, the start was a little bumpy
First, a deep and comprehensive understanding of the market requirements of all stakeholders was needed. The next step then was setting up the right team of experts to find the right solution. And, finally, the Eurex management had to be convinced, that this peculiar new idea was actually a promising business case.
But the success proved the team right. Starting with a small group of German clients concentrated on the Jumbo and German Pfandbrief market segment, Eurex Repo developed into a multibillion euro business with Bund specials reaching a market share of 20 percent. All that in just a few years and driven not least by the 2008 financial crisis.
GC Pooling – a next milestone
The next major step was the launch of GC Pooling together with Clearstream in 2005.
With this, one had nothing less than a perfect tool for liquidity management and financing needs in the banks' treasury departments. At first, many people didn't really see a need for such a secured funding product as an alternative to an unsecured money market deposit, but the team placed it anyway. And when the financial crisis hit a few years later, there was a product that the market desperately needed right then. The concept of an anonymous trading platform in combination with a central counterpart helped many banks ensure their liquidity financing needs during these difficult times.
But the whole process also proved once again that one can not build new markets overnight; it needs patience, because it takes a few years for the markets to reach a relevant size. Innovations can not be done without the support of the market and a bit of lucky timing.
GC Pooling was of course not the only milestone. From the very beginning, Eurex Repo has driven their product development in such a way that, over the years, they have always been one step ahead of the competition. One new product followed the other: The Euro GC Pooling EXTended Basket in 2008, the USD GC Pooling segment in 2010, the SecLend Market in 2013, our Repo Partnership Program in 2018, and the launch of the Eurex Repo Green Bond GC Basket in 2020, to name just a few.
Challenging projects and products in the pipeline
A big topic is cleared repo for the buy-side, where Eurex’s new ISA Direct Indemnified model has just received regulatory approval. This enables Eurex to extend its existing buy-side offering to other target groups and onboard, alongside pension funds and insurance companies, hedge funds, allowing them to become direct clearing members for the repo markets.
Furthermore, Eurex would like the banks to be able to better exploit their netting possibilities in our markets, meaning balance sheet netting, with which banks can better manage their capital costs and which can more easily align with all regulatory measures.
Another challenging topic is the transfer of repo and collateral to the blockchain. Here the close cooperation with strategic partners such as HQLAx, Clearstream, Euroclear, JP Morgan, Bank of New York and BNP Paribas Securities Services has already led to significant progress. And finally, Eurex Repo would like to further expand our markets to North America and Asia.
So, no time for the Eurex Repo team to rest on its laurels. While the next 20 years will certainly offer challenges, the future looks promising.