Published: 17:22, May 22, 2024 | Updated: 17:30, May 22, 2024
Vulnerabilities in short-term funding markets need handling, says G20 watchdog
By Reuters
In this file photo dated Jan 28, 2023, a Pakistani money trader shows $100 notes at a currency exchange office, in Lahore, Pakistan. (PHOTO / AP)

LONDON - Vulnerabilities in widely used short-term markets for funding companies need to addressed as stresses there can spread to the broader financial system during market turmoil, the global Financial Stability Board said on Wednesday.

The FSB published a report on the commercial paper and negotiable certificates of deposit markets, which were worth some $4.7 trillion at the end of March last year.

"The high interconnectedness of CP and CD markets with other funding markets means that stress can be transmitted within the financial system and across borders, as experienced during the March 2020 market turmoil," the FSB said in a statement.

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Vulnerabilities include a limited secondary market due to the "buy and hold" nature of the instruments, investor dealer concentration, and opacity, said the FSB, which is made up of central bankers, treasury officials and market regulators from the G20 economies

Vulnerabilities include a limited secondary market due to the "buy and hold" nature of the instruments, investor dealer concentration, and opacity, said the FSB, which is made up of central bankers, treasury officials and market regulators from the G20 economies.

Moves towards electronification of trading platforms have gained little traction, and industry-led initiatives have been limited in scale and impact so far, in part due to relatively low margins in the market, the FSB said. 

Potential reforms include changes in the structure of markets, increased transparency such as through reporting data to regulators and publicly, and increasing liquidity through private repurchase agreement (repo) markets.

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"The idiosyncratic nature of CP and CD markets means that not all potential reforms may be appropriate or relevant for all jurisdictions," the FSB said.