Secondary Markets, Repo & Collateral

2024 has been an exciting year for secondary markets dominated by a range of regulatory consultations around the MiFIR/D review including bond market transparency and the framework of bond consolidated tapes, strides towards T+1 both in the EU and UK following the US move, as well as further developments in market structure and the wider bond market ecosystem.

These themes have been reflected in ICMA’s quarterly Secondary Market Practices Committee (SMPC) meetings, where topics presented this year included “The evolution and impact of TRACE: lessons learned”, “US T+1 – 2 days after the move”, “Credit Futures”, “The rising influence of hedge funds in bond markets”, as well as “The Bank of England’s System Wide Exploratory Scenario Exercise (SWES)”. The panels in ICMA’s annual Secondary market Forum furthermore featured lively discussions around Market Structure and data, the outlook for global bond markets and the growth and innovation of fixed Income ETFs.

ICMA’s Bond Market Liquidity Taskforce (BMLT) which was established in 2023, also published its report on “Liquidity and resilience in the core European Government Bond markets” earlier this year, aiming to identify potential vulnerabilities in underlying market structure based on extensive data analysis, modelling, which was complemented by interviews with sell-side and buy-side market participants. Moving to its next phase, the BMLT will over the coming months provide an in-depths exploration of the European Investment Grade corporate bond market.

A clear trend towards further electronification in bond markets was highlighted in ICMA’s semi-annually published secondary market data reports which aim to provide an overview of European trading activity in both the sovereign and corporate bond markets and point out recent developments derived from extensive data analysis. The Electronic Trading Working Group meetings this year discussed some of these trends with the aim to dig a bit deeper into the use of trading protocols. ICMA expects to conduct further work around innovation and structural changes in secondary bond markets in 2025, also looking at new entrants to the market and alternative liquidity providers such as hedge funds and Fixed income ETFs.

On the regulatory side, ICMA through its relevant working groups has been actively involved in the EU MiFIR and MiFID II Review, working through the various consultations published by ESMA and the FCA over the last months, in particular around bond market transparency and the newly to be calibrated deferral regimes in the EU and UK as well as the construction of frameworks of the EU’s and UK’s bond consolidated tapes.

With the US having moved to T+1 in May 2024, and both the UK and EU developing their own agendas for a move to a shortened settlement cycle, ICMA has been very actively engaged in the discussion and work both in the UK (through the UK Accelerated Settlement Taskforce and Technical Group) and EU (through the participation in the EU T+1 Cross Industry Taskforce). Going forward, ICMA will remain engaged on both sides and also form part of the EU’s newly established governance structure around the EU move to T+1.

Looking ahead to 2025, the MIFIR/R review in the EU/UK and T+1 will remain key priorities, as well as ICMA’s various workstreams around the functioning and liquidity of bond markets and its evolving market structure.

Secondary market, Repo & Collateral work across Asia Pacific

Secondary markets

In Q2, ICMA published a global survey on international investments in the Korean Treasury Bond market to catalyse local reforms needed for inclusion in the FTSE government bond index, results of which were shared with the Korean official sector and wider market participants at a launch event in Seoul. With the KTB’s recent inclusion in the index, ICMA looks forward to building our local membership base in line with the Korean government’s internationalisation efforts toward its capital markets.

Repo markets

Earlier this year, People’s Bank of China announced proposed measures to further open up China’s repo market to offshore investors. The proposal by PBoC may facilitate the use of GMRA in cross-border repo transactions; however, there are still governance and technical questions remaining to be clarified. We expect the final rules to be released at any time and will seek advice from legal counsel on the precise impact on ICMA.

More broadly in repo, as part of our continued commitment to promote market development around the world, ICMA has over the past years published a series of reports on domestic repo markets in the Asia-Pacific region, describing the main features of each market including market infrastructure, types of repo and collateral, market participants, post trade operations and their legal and regulatory frameworks. Jurisdictions covered so far in this series include Japan, Indonesia, Vietnam, Philippines, China, South Korea, and most recently Australia, with more to come.

Contact: ICMASecondaryMarkets@icmagroup.org