State Street has introduced a new peer-to-peer repo trading solution to provide its buy-side clients with a broader range of direct trading capabilities within its agency lending business.
The new capability is the next step in the Boston-based investment bank’s goal to encourage clients such as hedge funds, pension funds and insurance companies to participate in peer-to-peer trading activities in the securities finance market.
Through the scheme, borrowers of cash would be able to trade directly with lenders across a broader range of collateral types. State Street will also guarantee the payment obligations of cash borrowers to lenders within the programme.
The launch of the scheme comes as buy-side firms seek new sources of liquidity in the repo market, particularly following the COVID-19 crisis in March and April last year when trading firms and investors struggled to gain access to the repo market as banks and dealers struggled to increase capacity.
In addition, historical low interest rates are forcing buy-side firms to seek new revenue streams, without paying fees to intermediaries such as prime brokers.
“Following the migration we have seen to the cleared and sponsored repo market, we are now trying to unlock new liquidity and provide yield to cash investors on the buy-side as the pendulum swings to new demands on returns,” Travis Keltner, managing director of funding and collateral transformation at State Street Global Markets, told The TRADE’s sister publication, Global Custodian.
“What peer-to-peer is about is reducing the dependency on the middle-man, providing two parties with what they need and being able to provide finance against a broader range of asset classes.
“State Street is a firm believer in the peer-to-peer model, and with our product we share a common view that paring these clients reduces a number of hurdles over the course of a market cycle.”
The solution is also on offer for those securities finance clients that are not a custody client of State Street, and plans are underway to roll it out globally across different counterparties, starting with clients in the US.