GC Pooling: a liquid market for a range of economic conditions

GC Pooling for both overnight and term trades has become a regular fixture of European financing markets, driven by the benefits of a broad liquidity pool and clearing that offers balance sheet benefits to regulated entities. As European market participants’ views of funding and financing evolve and more financial activities gravitate towards market-based financing instead of private secured or unsecured lending, GC Pooling has taken on a greater importance in financial services infrastructure.Launched in 2005 as a mechanism for a broad number of market participants to capture funding liquidity, by 2025, over 160 institutions, including corporate treasurers, use the service on a daily basis as direct Eurex clients. This differs from other cleared funding markets globally that focus on repo dealers first and cash providers and hedge fund borrowers second. This creates more opportunities for building a liquidity pool.Volumes on GC Pooling rose sharply from 2021 to 2024, helped by ECB Quantitative Tightening programs that largely ended a collateral-driven market environment. In 2024, average daily volumes in the GC Pooling segment were €154 billion while average volumes in the repo market were €183 billion; GC Pooling was 16% smaller than the repo market (see Exhibit 1). This compares to 2021 when GC Pooling saw averages of €27 billion and the repo market was at €80 billion, and GC Pooling was 67% smaller than repo activity. The relative growth of each segment shows the importance of GC Pooling to market participants over the last few years.GC Pooling volumes as a function of ECB activityThe relationship between ECB monetary policy and GC Pooling activity is well known. In 2022, GC Pooling volumes began a steady increase as the ECB reduced its pandemic-driven Quantitative Easing policies. As liquidity demands have returned to the market, there is more competition between the ECB’s Deposit Facility Rate (DFR) and GC Pooling overnight EXT and ECB baskets. Between January and March 2025, traders had arbitrage opportunities both above and below the DFR (see Exhibit 2) as well as between GC Pooling baskets and the ECB’s Main Refinancing Operation (MRO). The MRO accepts a wide range of collateral while GC Pooling is limited to high quality collateral only. This offers a range of possibilities for traders depending on their needs.exhibit1exhibit22025 has introduced some new trading patterns in GC Pooling compared to ECB activity. Last year, Eurex observed banks taking cheap money on GC Pooling then depositing that cash at the ECB; this was a natural arbitrage for traders when GC Pooling rates were lower than ECB rates. In 2025 however, there is a great need to refinance inventory held on balance sheets, and this is leading to rates reaching two basis points over the DFR. While GC Pooling rates of five basis points over the DFR may be more attractive, the tangible costs of internal capital are coming through more clearly, especially with the ECB’s lower balance sheet and more available collateral in the market.According to Carsten Hiller, Head of Repo Sales Europe for Eurex, "GC Pooling has become an essential tool for market participants navigating the evolving refinancing landscape. As internal liquidity becomes more constrained, Eurex offers clear advantages in balance sheet management and operational efficiency."Building competition for liquidity internally and externallyThere are market reports that repo dealers are being asked to seek market financing rather than rely on internal treasuries for capital, and that inter-company liquidity fees are higher than they used to be. Looking externally can mean turning towards the ECB, to GC Pooling, to bilateral or to cleared single ISIN repo markets. Given the growth of GC Pooling, it appears that traders are finding it convenient from an operational and balance sheet perspective to use this liquidity pool.Meanwhile, the ECB may wish to see greater participation in MRO operations and has lowered the spread between the DFR and MRO rate to 15 basis points last year. While this presents some price competition with GC Pooling, it appears for now that both channels have sustainable liquidity for market participants. Some funding channel competition is healthy, especially when there are enough differences in collateral acceptance policies to suit a variety of market needs.Preparing for future market volatilityWhile recent equity market volatility has not impacted European repo markets, including GC Pooling, the need for primary and backup liquidity is a foremost consideration for any trader, treasury manager or risk department. Central counterparties (CCPs) have shown that they are a preferred venue for liquidity in a variety of stressed and non-stressed market conditions. The growth of GC Pooling over the last three years is an indication of this market perception.The next steps for GC Pooling are greater integration with central bank money (CeBM) and encouragement of public sector participation. In 2024, Clearstream and Eurex introduced a new solution for banks to settle transactions in CeBM, including connectivity to the Eurosystem’s TARGET2 real-time gross settlement platform, a market first. This product will be extended to GC Pooling in time for the launch of the European Collateral Management System (ECMS), currently expected in June 2025.The combination of Clearstream’s triparty and settlement connectivity to both TARGET2 and ECMS will enable Eurex Clearing market participants to settle the largest euro-specific ISIN and triparty repo in CeBM and at a single settlement system. While no study has yet shown the financial savings, outreach conducted by Finadium in Summer 2024 suggests that the opportunity to settle in CeBM is attractive across netting, liquidity and offering clients improved pricing.1 A more unified Capital Markets Union would help speed the adoption process along.Frank Gast, Head of Business and Product Development at Eurex, noted that, "With the integration of central bank money settlement, GC Pooling will become even more attractive for our clients. It opens up new opportunities to optimize liquidity and collateral management within a robust, well established and centralized framework."The further engagement of the public sector in GC Pooling is an important mechanism for building liquidity and stability. Participation is voluntary; there is no regulation that requires it. In some countries the public sector joins as a matter of course while in others, central banks and others state their reluctance to participate due to reputational concerns. At GC Pooling, Eurex reports that central banks, Debt Management Offices and supranationals are already on the platform and that more are currently onboarding.The growth of GC Pooling, both complementing the ECB and competing with its main refinancing operations in the repo markets, offers European cash and collateral managers a large, viable liquidity source for managing internal and external investment and funding requirements. The membership of a broad cross-section of investors and dealers creates a solution for accessing funding and creating arbitrage against ECB DFR and MRO rates. It also builds a bulwark against future financial instability, which is a useful addition in all market conditions.By Josh Galper, Managing Principal, FinadiumReferences:1 “Netting in Central Bank Money opens a new opportunity for balance sheet efficiency,” Finadium, July 25, 2024, available at https://finadium.com/netting-in-central-bank-money-opens-a-new-opportunity-for-balance-sheet-efficiency/Weiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit Weiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit