By Carol Penhale, managing director and practice lead for consulting and professional services at Broadridge

Sponsored Repo (SR) volumes are running over $300 billion daily at time of writing and with the introduction of Category 2 availability under FICC (non-US banks, broker/dealers, prime brokerage) in April of 2019, this market is poised for growth. Broadridge’s activity with firms in the last year has grown considerably for strategy, front/back office systems and operational needs for SR. Given the breadth of conversations Broadridge has had across a variety of business units, geographical regions and the growing number of inquiries, a top 10 list of SR questions seemed timely.

1. Do I have to set up SR in a separate trading entity/instance? For clarity on trade workflows, settlement and ease of traceability, the answer is yes. There may also be some requirement from FICC and clearing bank partners for separate instances for SR trade support.
2. If I am looking to setup SR in my bank, prime brokerage and dealer, which do I rollout first? Most firms looking to do multiple roll outs of SR in various lines of business start with the bank book of business, but this is driven by the existing books of business in the various units, client demand and individual business goals on a firm-by-firm basis.
3. How long will it take our firm to setup SR? For integration of an SR module to an existing system, three to four months. For end-to-end adoption of robust platforms with a base new system, over six months.
4. What catches firms -ff-guard setting up SR? The approval window timeframe expiry from FICC to commence SR deals is six months after approvals. To achieve this, firms bullish on their prospects for the SR business should concurrently prepare their operations, systems environment and seek client interest in conjunction with the FICC application. This will allow firms to dovetail anticipated FICC approvals with business/operations readiness to jump start the six-month window to go live with activity.
5. Is there anything out of scope for FICC’s Sponsoring Service? SR is limited to overnight and term repurchase agreement. Buy/sell trades, General Collateral Financing (GCF), tri-party and Central-Cleared Institutional Tri-party (CCIT) are out of scope for SR.
6.  Does SR look, feel and run the same for a bank vs. broker dealer or prime broker? The short answer is no. There are many factors that influence how SR will run in each business unit that is setup. This includes technology flows, current operating processes, the type of business a client represents on the other side of the SR (i.e. custodied vs. non-custodied or the tax/accounting implementations for cross-border activity are examples).
7. What are the main accounting issues that firms adopting SR are grappling with? Since firms are facilitating FICC interaction via a sponsored repo entity, accounting teams are faced with a decision to post/not post these transactions. In case they choose to post these transactions, the issue of account gross ups needs to be addressed.
8. Do I need to generate confirms for SR transactions? Most of the participants have chosen not to generate any confirms for these transactions.
9. Is there a method to streamline receive/deliveries from an OMNI depot account? Since SR uses OMNI accounts, settlements teams have requested binding functionality to impose a settlement discipline.
10. Is there an FICC onboarding check list for SR? Broadridge has an evolving list of common practices for SR adoption and FICC SR onboarding.

Firms are investing in technology for front and back office platforms to support SR trade methodologies. Firms are also looking to optimize workflows and tweak upstream/downstream functions such as risk, tax, client billing, reporting and processes to support SR for both client reporting needs and internal business operations.  Interest and growth in the SR market is anticipated to grow throughout 2020.