Industry viewpoint : Regulation & data : MTS


Repo market data

Luigi Marino-MTSQ&A with Luigi Marino, Product Manager, Market Data, MTS

What is the state of electronic repo market trading for buy-side firms today?
MTS recently launched repo trading functionality for buy-side clients in MTS BondVision giving these clients access to their dealer network and distributed axes using state-of-the-art trading tools and full FIX post-trade integration via a new front-end GUI integrating both cash and repo trading.

For the buy-side, the multi-product front end of the MTS BondVision platform, combining rates and credit with GCM’s Repo and Triparty products, is now a one-stop shop, with the potential of automated OMS integration.

The D2C markets require a great deal of flexibility and customisation. The request for quote (RFQ) trading protocol allows buy-side participants total control over what, when and with whom they trade. From a simple single line RFQ, manually populated and sent to a single dealer, to a List RFQ, automatically imported and sent to a pre-defined group of dealers, the client retains control.

Alongside the rise of electronic trading through platforms like BondVision, the buy-side is also finding a need for high quality, granular repo market data to more accurately define its trading strategies.

What value are firms looking to derive from repo market data? Are they able to access the data they need?
Repo is subject to different transparency requirements than other markets and as a consequence price discovery requires far more effort than in other markets, such as cash bonds. This can be problematic when accurate pricing is essential for all manner of trading activity including securities lending, basis trading, treasury investments and short positioning of outright cash trades.

For example before a trader can open a short position on the cash market, they need to be able to confirm that they can find a suitable price on the repo market for borrowing that bond. If the costs on the repo market are too high, then the trade may simply be uneconomical. Without an accurate sense of where prices are and the general trends in repo, it is extremely difficult for the trader to make these kinds of determinations.

Accurate and up-to-date data about market activity allows traders to make those calls. Fortunately, because repo is typically far less volatile than cash (apart from a few situations such as CTD bonds as futures expire), price discovery does not require real-time data. Buyside traders and other professional institutions can use end-of-day data as an effective proxy in order to price the cost of repo positions with far more accuracy. This enables traders to filter their portfolio against repo costs and therefore quickly decide which trades might be viable and which are not.

However, such data is not always easy to come by. Due to the largely OTC nature of the Repo markets and the lack of electronification, there are far fewer sources of quality repo data than for other fixed income markets.

If repo market data is currently so difficult to source, what can professional institutions do to acquire the information they need?
This is where MTS’s repo market data products come in, derived from the liquidity in the MTS Repo interdealer central limit order book.

As one of the most established electronic repo markets in the world, MTS Repo’s data provides an unrivalled look into repo market activity. MTS’s data is particularly strong in Italy, but its reach stretches into other markets as well and it is growing coverage across Europe.

This data is available to all market participants, from buy-side institutions to central banks and regulators and also academics, in a number of different data packages.

Many repo market participants are simply seeking to understand the market movement over time and determine what prices they can trade at. For these firms, a relatively straightforward product which provides a daily summary of activity across MTS Repo markets provides all the information that they need. MTS’s Repo daily summary (see Fig 2), organised per security and term, includes daily traded volumes, the market high, low and average rates, and information about trade flows. By analysing this data over time, a firm can build up a picture of market trends and make more informed decisions about where price activity might be headed.

For those firms which are seeking a more granular view of the market and an understanding of intra-day activity, MTS also provides a trade by trade data product. This gives detailed information on each trade posted on the MTS interdealer repo markets.
This more granular approach will be particularly useful for firms looking at quantitative trading techniques and wishing to do a more in-depth analysis of repo market patterns.

Do you think the repo market will follow other markets in becoming increasingly data-driven?
While it might be lagging a little behind other fixed income markets, data is playing an increasingly important role in the repo markets. As analytics become more sophisticated and computing power becomes cheaper, this trend will only continue.

The opportunities for performance and productivity gains are significant but cannot be realised if firms don’t have access to accurate data from deeply liquid markets.
For 20 years MTS has delivered one of the primary sources of liquidity in European Repo trading through its MTS Repo platform and is in a prime position to offer the data firms need to realise these opportunities. Any firm which would be interested in accessing this data can contact us to discuss a tailored package to meet their exact repo data requirements.