Guide to Best Practice in the European Repo Market

ICMA Executive Education is a joint partnership between the International Capital Market Association and the ICMA Centre, Henley Business School, University of Reading

Best Practice in the European Repo Market

*On 4 December 2015, the name of the European Repo Council (ERC) was changed to the European Repo and Collateral Council (ERCC).

Course OverviewThe ICMA Guide to Best Practice in the European Repo Market was originally published in March 2014 to consolidate and update a series of previous guidelines, recommendations and statements of market convention issued by the ICMA and its European Repo Council (ERC)*. Among other things, it incorporates the ERC’s* Repo Margining Best Practices. It is the most comprehensive guide to best practice that is available to repo market participants anywhere. It was last updated in July 2015.

The aim of the Guide is to help foster a smooth and orderly market in repo in Europe by recommending practices which market experience suggests can help avoid uncertainties or disagreements, as well as the consequent delays or disruption to repo trading & settlement. It also clarifies market conventions, usually in response to queries from market participants.

The Guide is not an official code of conduct but it is an important self-regulatory document which should be able to demonstrate that a firm is striving to meet high standards of conduct. Staff should therefore be familiar with the Guide and the issues it addresses.

By completing the programme you will:

• Develop a broader knowledge of what a repo is

• Be able to differentiate between the various types of repo

• Understand the complicated infrastructure of the repo market

• Be fully aware of the best practices and market expectations when dealing with repos

internationally recognised qualifications for the

financial market

This course gave me a huge amount of knowledge about the repo market, its practices and the legal framework

Stine Sofie Grindheim, Department Head, DNB Markets

Best Practice in the European Repo Market

internationally recognised qualifications for the

financial market

Course ContentThe course content is designed to give delegates a complete overview of the guide and is divided in to several topic areas, which are then broken down into multiple subtopics:

1. Understanding a Repo• Name, basic structure and terminology• Legal construction and economic purpose of a repo• How repo is used• General principles to observe when managing repo

2. Differentiating Types of Repo• Repurchase agreements• Sell/buy-backs, undocumented & documented• US repo• Synthetic repo• Pseudo repo (things called repo, which aren’t)• Basic variants of repurchase agreements including: • fixed-rate • floating-rate • open and evergreen • forward• Comparing repo and securities lending

3. Understanding Repo Rates• What is GC repo?• What are specials?• DefinedGCbasketsandrepoindexes

4. Before the Trade• What needs to have been agreed with the

counterparty before trading?• Theroleofdocumentation.Whatisamaster

agreement?TheGMRA• Key operational clauses to agree before trading• Communicating with counter parties• Managing disputes

5. Initiating a Repo Transaction• Theneedforclearcommunication• Who are you dealing with, a principal or an agent?• FixingthePurchase,Repurchaseandotherdates• Quoting the price of a repo• Quoting the Purchase Price in repurchase

agreements and sell/buy-backs• AllocatingcollateralinaGCrepo• Agreeingthepriceofcollateral• Giving and asking for rights of substitution• Verifying the terms of transactions:

confirmationandaffirmation

6. Transaction Maintenance• Terminating an open repo• Calculating open repo interest payments• Calculatingfloating-rateinterestpayments• What happens when there is a coupon,

dividend and other interest payments?• Exercisingagreedrightsofsubstitution• What happens when there is a corporate event?

• Confirmingandaffirmingpost-tradeamendments and updates to the terms of a repo

7. Margin Maintenance• Applyinganinitialmarginorhaircut• What transactions are included in the

calculationofNetExposure?• What price is used to value collateral?• HowoftenshouldNetExposurebecalculated

and margin called?• Margin thresholds and minimum transfer amounts• What is the deadline for making a margin call?• Where margin is given in the form of securities, what

issues have to be accepted by the margin-taker?• Should initial margin or haircut be deducted

from margin securities?• What is the deadline for delivering margin?• Can margin securities be substituted?• Interest payments on cash margin• Howis“re-pricing”usedtoeliminateNetExposures?• When is margin returned?• What happens if margin is not delivered?• What happens if there is a dispute about a

margin call?• Checklist of margin parameters to be agreed

between parties before trading

Course FormatTheICMAGuidetoBestPracticeintheEuropeanRepo Market course is currently available as a classroom-based programme, taking place inLondonthroughouttheyear.Thisisanon-examinedcoursebutdelegateswillreceiveacertificateofattendance,issuedjointlybyICMAandHenleyBusinessSchool,UniversityofReading.

Target AudienceTheGuidecoversissuesrelevanttothoseinthefront,middleandbackofficeinvolvedintheEuropeanrepomarket.Itisrelevanttostaffintrading and sales, treasury, trade support, product and business management, collateral management, margining,settlementandlegal/documentation.

Course DirectorRichard Comotto is a Senior Visiting Fellow at the ICMACentreattheUniversityofReadingwherehe is responsible for the money markets module of theCentre’spostgraduatefinanceprogramme.HealsocompilesICMA’ssemi-annualEuropeanrepomarket survey and is Course Director for a number of educational programmes for the repo and securities lendingmarkets,includingtheICMAProfessionalRepoMarketCourse,ICMA’sGMRAWorkshopandtheICMA-ISLAGMRA-GMSLAWorkshop.

ICMA Executive EducationFormanyyearsICMAExecutiveEducationhasbeenregarded as the benchmark in training for both thefrontofficeandoperationsareasofbusiness. Our courses are internationally recognised and are required training by many of our member firms.ICMAExecutiveEducationisuniqueinthatICMAandtheICMACentre,HenleyBusinessSchool, University of Reading work together to deliver training courses, taught by current and formerfinancialmarketspractitionerswhichblend practical and academic know-how, so that candidates have a thorough understanding of the topicsbeingdiscussed.

SevenCertificateProgrammesareoffered:

• Financial Markets Foundation Course (FMFC) • Securities Operations Foundation Course (SOFC) • Introduction to Fixed Income (IFI)• Introduction to Primary Markets (IPM)• Fixed Income Certificate (FIC) • Operations Certificate Programme (OCP) • Primary Market Certificate (PMC)

Allarerecognisedascertificatesofcompetenceinthe capital markets and are successfully completed by large numbers of international participants eachyear.Inadditiontoourcertificate programmes, we also offer a selection of specialist coursesthroughouttheyear.Theseprogrammesaresingletopicsubjects,coveredwithinourintermediatecourses,butinmuchmoredepth. Thecoursesarefocussedandprovideanopportunityto network and discuss the issues affecting the financialmarketswithyourindustrypeers.

ICMAExecutiveEducationisabletoprovideanyofour public courses on an in-house basis if required, if an organisation wishes a number of delegates to attendaspecificcourse.

ICMA CentreTheICMACentre,UniversityofReadinghasaninternational reputation for providing quality teaching programmes tailored to the capital marketsindustry.Establishedin1991withfundingprovided by the International Capital Market Association(ICMA),theCentreishousedinapurpose-built modernist building with state-of- the-artfacilitiesincludingtwodealingrooms.In2008,ICMAenabledanexpansiontothebuildingthat now includes an additional 50 seat dealing room,170seatlecturetheatreaswellasnewseminarroomsandadedicatedresearcharea.

The International Capital Market AssociationTheInternationalCapitalMarketAssociation(ICMA)representsfinancialinstitutionsandotherparticipants in the international capital market worldwidewithsome500membersin60countries.ICMA’smarketconventionsandstandardshavebeen the pillars of the international debt market for close to 50 years, providing the framework for good market practice which facilitates the orderly functioningofthemarket.ICMAactivelypromotestheefficiencyandcosteffectivenessofthecapitalmarkets by bringing together market participants includingregulatoryauthoritiesandgovernments.

Further Information And Course RegistrationFor further information and to register for any of our courses, please visit: www.icmagroup.org/education or contact us at: education@icmagroup.org

International Capital Market Association Limited23 College Hill,London EC4R 2RPUnited KingdomTel:+44(0)2072130310Fax:+44(0)2072130311Email:education@icmagroup.orgwww.icmagroup.org

ICMAandtheUniversityofReadingworktogetheras“ICMAExecutiveEducation”underanoperatingagreement.Coveringtechnicalproduct/marketsandoperations,theprofessionalqualificationsandtrainingprogrammesaredeliveredinmajorfinancialcentresaimedatmarketpractitionersinthefinancialmarkets.