Study: Primary dealers key to euro-area repo market function
A Banca d'Italia paper investigates the structure of the euro-area repo market, focusing on the intermediation role of primary dealers. It highlights their crucial function in liquidity redistribution, particularly in the non-centrally cleared segment.
Two faces of the repo market
A Banca d'Italia paper, drawing on granular data collected under the Securities Financing Transactions Regulation (SFTR), documents the structural features of the euro-area repo market.
Outstanding volumes are almost evenly split between centrally cleared and non-centrally cleared segments.
These segments differ markedly in participant composition, maturity structure, and trade characteristics.
The centrally cleared segment is predominantly an interbank market, with most trades occurring in the 1-day tenor and in the security-driven segment.
In contrast, the non-centrally cleared market involves a broader set of participants – banks and non-bank financial institutions (NBFIs) – with volumes skewed towards longer tenors and a relatively larger share of general collateral trades.
This maturity structure, characterized by a non-negligible share of longer-term positions, reinforces the relevance of relying on stock data when assessing the non-centrally cleared segment.
Primary dealers are identified as the most active players, holding outstanding positions with a wide array of counterparties.
Primary dealers as central nodes
Within the less-explored, yet systemically relevant, non-centrally cleared segment, the study identifies a stable core-periphery network.
Primary dealers act as central nodes, connecting peripheral entities such as non-bank financial institutions and non-dealer banks.
These dealers play a structurally important role in safeguarding proper market functioning by channeling liquidity from cash-rich agents to those needing funding.
This performs a crucial function in redistributing liquidity within the system, particularly during phases of reserve rebalancing.
The detected core-periphery configuration is highly persistent over time, signaling that the intermediation function of primary dealers is a structural characteristic of the market architecture, consistently performed by a stable set of counterparties.
The paper contributes to existing literature by advancing the structural analysis of the euro area repo market through the combined use of SFTR data and network methodology.
Unveiling the hidden plumbing
This research provides a vital, data-driven look into the often-opaque euro-area repo market, confirming the indispensable role of primary dealers in systemic liquidity.
By focusing on outstanding positions and network analysis, it moves beyond transactional views to reveal persistent structural interdependencies.
The findings underscore the need for continued supervisory attention to these core intermediaries, especially as liquidity dynamics evolve.