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10 June 2024

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SIX: Celebrating 10 years of repo trading

For 10 years, SIX has supported the international repo market through its trading services. In light of this milestone, the company reflects on some of its largest achievements and explores what the future holds for the market

SIX established its repo trading platform in 2014, with the aim of supporting the Swiss money market and its fully integrated value chain.

Not only did the repo trading platform underpin activities like liquidity management, but it was also used by the Swiss National Bank (SNB) to implement its monetary policy operations, auctions of federal bonds, and money market book claims 鈥 succeeding a previous platform that was offered by a former SIX-joint venture.

The platform operated by SIX was made available to Swiss and international financial institutions, and ensured that trading, securities settlement, and payment processing, were offered as a fully-integrated solution from a single, centralised source in 14 currencies.

Getting to the CO:RE

In 2016, SIX went live with its new electronic trading facility 鈥 CO:RE (Collateral & Repo) 鈥 offering a single point of access to more than 160 domestic and international clients, including banks, insurance companies and funds, who are active participants in the domestic multi-currency repo market.

This launch further cemented the company鈥檚 position in the repo and securities finance world.

CO:RE replaced a number of legacy systems, shoring up the repo market with upgraded technology and capabilities, together with new functionalities. In addition, CO:RE provided an enhanced real-time securities finance offering, bringing together trading and collateral management in a fully integrated value chain, from trading to settlement and collateralisation at the Central Securities Depository (CSD) and custody level.

The solution also gave users the ability to monitor their collateral in real-time 鈥 with multi-day forecasting tools further helping financial institutions with collateral management.

In 2017, the Swiss Financial Market Supervisory Authority (FINMA) approved the request of SIX for its CO:RE trading platform to be designated as a multilateral trading facility (MTF).

The Collateral Cockpit takes centre stage

In 2020, SIX launched its Collateral Cockpit, a technology interface designed to join together fragmented front and back office information systems, thereby giving repo market participants the ability to view, manage and optimise their collateral in real-time on a single platform.

Historically, collateral management was a convoluted process.

For instance, collateral was often managed across the front and back office through a byzantine network of systems developed by a range of different technology providers. This complexity and lack of visibility meant manual intervention was frequently required to prevent operational errors from happening.

These issues have since been remedied by Collateral Cockpit, as it enabled both automation and transparency by giving users a holistic view across all of their collateral processes and activities.

Taking collateral management up a notch

As a next step in its path of innovation, in 2021 SIX unveiled its renewed Triparty Collateral Management (TCM) solution, complementing its existing Triparty Agent (TPA) and Collateral Cockpit solutions.

When using the TCM service, two parties to a transaction delegate their day-to-day operational responsibilities around collateralisation to SIX. The SIX TPA then performs tasks such as the selection and automatic execution of collateral transfers, and ongoing validation that exposures are being appropriately collateralised through multiple daily mark-to-market checks during the transaction lifecycle.

This service creates additional opportunities for clients by helping them to reduce operational risks and costs. By leveraging TCM in conjunction with Collateral Cockpit, users can monitor their exposures and margin calls in real-time, while also benefiting from having simplified collateral management processes, like easily substituting collateral position with a few clicks.

Move to SARON

In the aftermath of the rate rigging allegations, LIBOR 鈥 which was the reference rate for a number of currencies including the Swiss Franc 鈥 ceased to exist and was replaced with SARON. SIX has closely collaborated with the Swiss National Working Group on the LIBOR replacement 鈥 the Swiss Reference Rate SARON is currently calculated based on the interest rates from repo transactions on SIX鈥檚 CO:RE trading platform, and the associated information is distributed globally by SIX Financial Information.

What do the next 10 years hold?

The local market gets bigger.

Volumes in the SIX repo market are expected to grow further, and this is likely to trigger even greater global participation in the already international market.

Although a number of non-Swiss institutions 鈥 such as entities from the UK, Germany and Denmark 鈥 are present in the repo market, it is expected that more organisations from further afield will join them, potentially including additional central banks, insurance companies, pension funds, and fund management groups.

Collateral mobility becomes more important.

Over the last few years the industry has faced collateral shortfalls, sparked by central bank quantitative easing policies and post-financial crisis regulations, such as Basel III and Solvency II 鈥 both of which subject financial institutions to risk-weighted capital requirements.

The hunt for high quality liquid assets (HQLA) was also intensified following the introduction of mandatory OTC derivative clearing rules and margining requirements for uncleared or bilaterally traded OTCs.

As central banks wind down their balance sheets and financial institutions become more accustomed to these regulations, fears about collateral scarcity are easing, but organisations are all too aware that they need to have efficient collateral management processes in place.

The ability to mobilise collateral as quickly as possible will be critical for firms moving forward.

Transparency into securities finance transactions (SFTs) will only grow.

Introduced in 2016, the Securities Financing Transaction Regulation (SFTR) required financial institutions to report details of their SFTs 鈥 repos, securities lending, securities borrowing, and margin lending 鈥 to trade repositories. With the integrated SFTR reporting service for repo transactions on the CO:RE trading platform, and its investment in REGIS-TR, SIX is well positioned to be a supporting partner for its clients.

With regulatory reporting becoming increasingly ubiquitous more generally, SFTs and repos could face added scrutiny.

Repo will continue to undergo a digital transformation.

SIX is playing an instrumental role in the digitalisation of financial markets, including repo, and, together with partners, is actively supporting initiatives in the space of digital securities transactions

On its repo trading platform CO:RE, SIX has seen the first repo transactions using digital native assets as collateral in early 2023.

Having been at the forefront of innovation in the repo market since 2014, SIX has every intention of staying the course over the next decade and beyond.

With this occasion, we would like to thank your clients and partners for being part of this incredible story. We are looking forward to the exciting journey ahead and welcome all companies that would like to join the SIX repo market.

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