​Why TRFs Will Drive Repo To Become An Asset Class In Its Own Right

Hedge funds and institutional investors have been increasingly trading implied equity repo in recent years via total return swaps (TRS) for arbitraging the term structure or entering carry strategies amid an environment where rates have been driven by regulation and investor positioning. Liquidity, price discovery and concerns surrounding collateral have become an issue in trading TRS for some participants, however, with the coming implementation of EMIR making the instruments less attractive to trade. Total return futures (TRF) on Eurex aim to mitigate those concerns surrounding TRS while still allowing investors to monetize implied equity repo. Rob McGlinchey spoke with BNP Paribas’ Antoine Porcheret on the benefits of TRFs and what will drive increased volatility in equity repo rates in 2017.