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25 September 2012
Joséphine de Chazournes
I was writing a piece of research on the ABS and Repo markets in Europe this Summer and stumbled onto an innovative product offered by MTS and Newedge, Agency Cash Management (ACM) and thought, "wow, this is really innovative and this is what the market needs". ACM does provide a tri-partite Repo system whereby investors, in an electronic auction regulated platform, enter into a repo trade with banks via tri-partite agents, exchanging their extra cash against good collateral, lending securely and concurrently earning a fee for it. This is really spot on to me as many investors nowadays have extra cash that they do not know where to invest, that they do not want to leave on a bank deposit account because they don't trust their bank's creditworthiness anymore, or that they do not want to invest in a Money Market Mutual Fund because they got burnt during the crisis. However they do want to get some return for lending that cash to someone. ACM does exactly that. This is theory obviously, in practice going after all the potentially cash-rich investors, getting them to sign tri-partite contracts with tri-partite agents is going to take some time. Also, in the good quality collateral constrained environment that we are in, banks may not have all this good collateral to offer against these piles of cash, but then again they may find a way to transform bad collateral in good one, this is what banks (and shadow banks and shadow banking products) excel at doing. EurexRepo and Eurex Clearing are working on a similar offering to ACM that should launch in 4Q2012. The model is created to offer banks that are current GC Pooling clients a facility to enter into a Repo trade with their coporate clients, in an electronic and centrally cleared environment. Cleastream is the tri-partite agent here and can take care of the collateral management, which is becoming ever more useful. Practically it may be as hard to get corporates as to get investors to sign tri-partite repo agent contracts, but the theory holds: cash-rich corporates, like investors, do not want to leave their cash on a deposit account, want a secured way to place their cash and want a fee for it. We see both as really innovative products that respond to real market needs: watch this space.

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