One head of repo at a leading bank was blunter, calling the proposed legislation, “nuclear” for the market. He said the industry is finally waking up to the threat, having assumed the legislation would never get this far.
Potentially, the Financial Stability Act, should it become law, could overshadow current efforts among dealers, clearing banks in tri-party repo and investors, who are trying to reform the repo market some time next year.
“If the bill passes and you trade repo with a bank covered under the new rules, the government can take up to 20 per cent of your principal under a bankruptcy,” says Scott Skyrm, senior vice president at Newedge, a repo broker.
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