Topic: Intraday Repo - Unlocking Real-Time Liquidity
Date: 21 January 2025
Location: The Dome Room, 1 Cornhill, London, EC3V 3ND
Attendees: Representatives from Banco Santander, Barclays, BlackRock, Clearstream, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, R3 & UBS
Facilitators: Erica De Rosa, Richard Glen
To discuss the drivers & business case for firms interested in executing intraday repo via HQLAx
To identify the MVP requirement for product delivery vs legacy cash to complement existing digital cash solutions under development
To form a working group to deliver a product vs legacy cash and go live with meaningful volume in H1 2025
Traditional limitations: Current practices often rely on treasury buffers and overnight funding, leading to inefficient use of capital, higher costs, and increased operational risk.
Sources of intraday liquidity today: Prioritize usage of secured credit lines at key custodians. Maximize fungibility of collateral vs the widest range of currencies. Reduce reliance on unsecured borrowing. Inject central bank money if required. Throttle capacity as last resort.
Emerging needs: The move towards T+1 settlement, increased regulatory scrutiny, and the need for greater operational agility necessitate more dynamic and efficient intraday liquidity management solutions.
Enhanced capital efficiency: By tapping into new sources of liquidity and increasing collateral utilisation, firms can significantly reduce their reliance on expensive overnight funding.
Reduced operational costs: Streamlining intraday liquidity management can lower operational expenses associated with collateral movements, custodian fees, and regulatory compliance.
Improved risk management: Intraday repo can help firms better manage liquidity risk by providing access to flexible and responsive funding sources. It can also reduce reliance on static buffers and enable more accurate forecasting of liquidity needs down to the minute.
New revenue opportunities: Intraday repo is yield enhancing and able to generate additional alpha for both treasurers and portfolio managers. A flat fee basis point model is desired by borrowers whereas lenders prefer by the minute accruals.
Scope and focus: Clearly define the scope of intraday repo vs core currencies (USD, EUR, GBP plus HKD, AUD & JPY). Create a functional market that is deep & liquid, committed in times of stress & ideally has zero fails. Facilitating collateral mobility to the location of existing secured lines using a product such as DCR Longbox may be easier mechanically to implement.
Key use cases: Focus on use cases & venues that require liquidity on a daily basis (treasury management, stress tests, nostro account management, prepays) as well as those that drawdown on liquidity either ad-hoc or less frequently (DCM, issuance). Identify transaction opportunities that settle recurringly at certain times. Align intraday closings to a counterparty's end of day.
Addressable market: Low triple billion figures on a daily basis recycled across EMEA and APAC are possible. The US market should largely be considered out of scope for a working group as it has existing intraday repo capabilities.
Technological infrastructure: Invest in robust technology platforms with advanced analytics (e.g. identifying longs & shorts at precise moments in time) and data visualization capabilities to support real-time monitoring and management of intraday liquidity flows.
Standardization and interoperability: Develop standardized rules and procedures for intraday liquidity management requirements, including settlement times (noting batch runs or recurring payment cycles), collateral eligibility, and pricing mechanisms. Leverage existing industry standard documents for trading relationships. Identify key venues and assess the benefits of implementing enterprise vs desk level strategies.
Regulatory recognition: Secure recognition for intraday repo as a valid and reliable source of funding from regulators to facilitate broader, long-term market adoption.
Addressing operational and technological challenges: Overcome operational hurdles such as the trade booking model (firms wish to consume rather than communicate the settlement timestamp), regulatory reporting (SFTR), a look-through to collateral held (timing, frequency, content), data integration and system compatibility to ensure smooth and efficient execution / reconciliation of intraday repo transactions.
Modelling requirements: Peak cash needs are easily simulated using historical data but identifying available excess collateral at the same point in time is difficult. Having wide baskets of eligible collateral to support intraday repo is desired by some market participants to solve for this.
Collaboration: Explore & collaborate on innovative solutions for intraday liquidity provision, such as tokenized deposits, synthetic and central bank digital currencies (CBDCs).
Advocacy: Commit to develop a functional market. Align with ICMA and other relevant advocacy bodies to drive best practice and standards.
Continuous improvement: Continuously monitor and evaluate the effectiveness of intraday repo solutions, adapting and refining them based on market developments and evolving regulatory requirements.
“Our stress window is an hour or so per day, so we don’t need to manage that with a year’s worth of buffers. It would be better to do via a more precise liquidity management tool.”
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