(Euro Papers. October 1999.
Brussels. 62pp. Tab. Ann. Free.)
The second report of the Giovannini Group "The EU Repo Markets: Opportunities for Change" was submitted to the European Commission on 26 October 1999. This report looks at the repo markets in the EU and highlights those areas that are most clearly in need of reform. The report offers practical solutions to the problems thrown up by fragmented infrastructures, market practices, and fiscal and legal differences.
The report argues that the importance of the sale and repurchase "repo" market for the full and efficient integration of the euro-area capital markets means that change is necessary. This market's key role is illustrated by the fact that the European System of Central Banks (the "Eurosystem") uses repos as its main monetary policy tool, to provide, and drain, liquidity from money markets. Financial institutions use repos to manage their own liquidity position, but also to support their securities market-making activities. An efficient integrated repo market would enhance the liquidity of securities markets. But in the EU there are essentially 15 largely separate repo markets. Integration will require substantial reform.
The report makes a number of recommendations, addressed to market operators, infrastructure providers, and to the national and EU authorities. The report's general recommendation is that all these groups need to promote change "to enable participants in every Member State to deal across the spectrum of Member State counterparties and across the spectrum of Member State securities adopting a single, cost efficient, approach and infrastructure platform".
In 1996 Alberto Giovannini (Deputy General Manager of Banca di Roma) was invited by the European Commission to form a group of financial market experts (known as the "Giovannini Group") to offer advice to the European Commission on how to prepare the capital markets for monetary union. His first report "The impact of the introduction of the euro on capital markets" is also published as Europaper. The on-going role of the Group is to pro vide the European Commission with economic analysis and a market-based perspective on issues affecting the EU capital markets. It aims to tackle issues of market inefficiency and to propose practical solutions to improve market integration.