The Canadian investment industry came together to build a central counterparty (CCP) for the repurchase transactions (repo) market and must continue that sort of collaboration to support the repo market’s further development, a new report published Tuesday concludes.
The Investment Industry Association of Canada (IIAC), and the Canadian Derivatives Clearing Corp. (CDCC) have published the report they commissioned from Deloitte LLP, which examines the clearing and netting system for repos that was launched in 2012.
The system “has contributed to improved transactional efficiency and market liquidity while better positioning domestic repo markets in future stressed market conditions,” the IIAC says in a news release.
However, the volume of centrally cleared repos must increase for market players to fully realize the benefits of the system. “The collective group (CDCC and clearing members) needs to further their collaborative efforts to address this,” the report says.
The report also recommends that the CDCC should consider enhancing the authority of the CCP Membership Committee to prioritize operational improvements. “This could alleviate any concerns around transparency,” it adds.
“The stability of the financial system remains the primary objective, but it can only be achieved with the support and contribution from all participants,” the report says.