When Bank of America announced yesterday that it's joining Thomson TradeWeb's online Triparty Repo marketplace, which already includes Barclays Capital, Deutsche Bank, JPMorgan, Morgan Stanley and UBS and sees average daily trading volumes of $60 billion, it may have provoked a shiver of fear and dread among independent repo dealers. TradeWeb Repo is an electronic trading platform for the tri-party repurchase agreement (repo) market; participant dealers use the online platform to offer repos to their institutional clients and provide straight-through processing."Whenever a big player enters into this kind of private club, it's significant because it concentrates liquidity within a specific circle," says Mayiz Habbal, Managing Director at research firm Celent. The entry of this sixth large and active repo dealer to TradeWeb could shut out smaller investment banks trying to compete for the business. In fact, Habbal says he would not be surprised if independent players like Bank of New York, after initially trying to compete on their own, eventually break down and join the TradeWeb group. "It's the same concept that's happening on the equity side with liquidity becoming concentrated in certain dark pools," he says. "I would call what's happening right now a bright pool -- it's very bright, everybody knows about it, this is where the liquidity is. It's like an ocean flowing."
The growth of the triparty repo market itself should continue to follow the curve of the overall stock market. As long as investors who hold long positions and desire quick financing borrow against those securities in a market that continues to increase in value, they can feel fairly certain that their securities will be worth more when they buy them back. If the market takes a downturn, triparty repo markets will most likely suffer.