Goldman, JPMorgan Limit Impact of Regulation on Repo Trading: FT

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(Bloomberg) -- Goldman Sachs Group Inc. and JPMorgan Chase & Co. have found ways to trade in the U.S. repo market while limiting the impact of regulatory requirements, the Financial Times reported on Sunday.

Goldman has in recent months, for example, started imitating repo trading using total return swaps that have lower capital requirements than regular repo trades, the FT said, citing people familiar with the bank’s operations. JPMorgan has encouraged clients to use “sponsored repo” deals, where a clearing house sits in between trades and “allows dealers to net transactions off against each other,” the FT said.

The actions of the banks minimize their capital requirements and take pressure off the market at the end of the year, when lenders have tended to rein in repo activities, according to the FT.

Goldman and JPMorgan, which both declined to comment to the FT, each trade almost $200 billion in the repo market every day. The New York Federal Reserve has been injecting cash into the repo market since September to make sure there is sufficient liquidity.

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