Hi Folks,
I am really passionate about sell-side repo Trading Desk, since I am recently inter-transferred from back office to our banks' Treasury Division's group of Funding Desks: Money Market, ALM, repo, etc)
Quick Question here:
For any BB, there is a tradeoff for REPO desk to make: How much they should care about making profit? since repo's usual main priority is funding other desks.
I believe: to be a top Repo trader in the industry, he has to be provided by the bank with the access of market making (not just repo out securities for funding, but run a matched book to pursue spread profits), besides the basic functions of funding the firm inventory and risk management of the collateral liquidity, etc.
So I do need your help here. May I know:
1) What are the factors bank managers will consider when deciding their REPO Desk's priorities (how much the profit objective is)?
2) Are Repo Desks always stay together with Banks' Money Market Treasury Desks, for almost all the banks??? if not, can some of you share what are those typical neighbor desks (with most interactive teamwork) to Repo Desk in the sell-side BB industry??
3) Can some friends here also kindly share with me, what are the most important skill-set to become a top repo trader in the current industry? eg. What specific kinds of Market Sense or Quantitative skills they must own?
I will definitely hope this post can be helpful to every readers, since Repo plays such important role to be a bridge between buy and sell side.
For those willing to give a reply here, even if just a very brief one, thank you so much in advance!!
Best regards,
BChen
It depends... You will learn as you go along and ask questions. In general, things have changed a lot and are still changing, but profit isn't really high on the list of priorities at the mom.
Not always, but often... Another possibility for a natural "neighbour" desk is cash, i. e. The desk which trades the collateral, but that's probably not so typical for the sell side.
As with anything in life, be humble, work hard and you'll do fine. You don't need to be a rocket scientist or a brain surgeon.
I touched upon these issues in a response to one of your earlier posts.
Briefly,
1) Very basically does the repo desk have resources to run a profitable book? In this environment, you need access to cheap funding and a large enough balance sheet (when most of the Street is winding down balance sheets) so you can buy cheap collateral. It's mostly about having access to the right clientele.
2) Not always, but the separation may be superficial in many cases. The more profit-driven a repo desk appears to be, the more likely it will separated from Treasury, as Treasury's mandate of funding the bank is not profit-driven. In reality, the Treasury function, which I'll roughly define as unsecured funding, can be very profitable and generally uses the same style of trading as repo matched book trading. While the relationship between unsecured and secured funding has broken down at lower bound, Treasury and repo are similar in most respects.
Other than Treasury, repo may be grouped near FX Fwds, Rates trading (as part of very very short-end of curve), or a short-term rates group focused on derivatives.
3) Traditionally, when balance sheet was unlimited, you probably just focused on making as much money as possible, whether that was thru GC or as a specials trader. Nowadays with scarce balance sheet, a firm understanding of regulatory environment goes a long way. The most important trait is probably a healthy respect for detail. The repo market has a lot of rules and operational nuances. Being open-minded, especially towards learning related markets, helps a lot. Understanding the U.S. Treasury auction cycle and the Fed hiking cycle is the most important thing for specials trading. GC trading is driven by balance sheet pressures and intra-month technicals, but will also respond to FX developments and U.S. monetary policy (especially considering the Fed will use repo to lift short-rates).
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