The recent CASLA conference in Toronto has brought attention to the imperative need for enhancements in the Canadian market, specifically in the realm of repo and collateral. The panel, overseen by Steve Everett of TMX, engaged in a discussion on the difficulties encountered in the post-trade landscape and the essentiality of industry transformation.
Nick Chan of BMO Capital Markets articulated that Canada’s operational approach is distinct from other jurisdictions, placing greater reliance on collaboration and discourse. He underscored the underdeveloped state of the Canadian market in terms of collateral reuse, and the potential for expansion and advancement. According to Chan, the Canadian market holds promise for increased innovation and liquidity, leading to heightened market participation in the future.
Maksym Padalko from the Bank of Canada underscored the absence of a general collateral market in the country and the necessity for a more active repo market. He also emphasized the significance of a well-developed term repo market to absorb abrupt volatility and mitigate risks in the immediate term. Additionally, Padalko highlighted the potential for broadening the use of Canadian collateral or securities in foreign markets such as the US and Europe.
Barnaby Nelson, CEO of Value Exchange, highlighted the substantial costs incurred by the industry to sustain the current infrastructure in the collateral repo space. He raised concerns regarding the sustainability of this level of support in the long run and emphasized the urgency for change. According to Nelson, the industry cannot maintain its current mode of operation and must adapt to the evolving landscape, particularly as Canada enters the triparty era.
In conclusion, the discussion at the CASLA conference has underscored the pressing need for a reevaluation of collateral approaches in Canada. The underdeveloped state of the market, particularly in collateral reuse, presents an opportunity for growth and evolution. It is evident that the Canadian market has the potential to pioneer more innovation and liquidity, ultimately expanding market participation in the future. As the landscape continues to evolve, it is imperative for the industry to adapt and embrace change for a more robust and resilient market.