Benoît Cœuré: Asset purchases, financial regulation and repo market activity Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the ERCC General Meeting on "The repo market: market conditions and operational challenges", Brussels, 14 November 2017. * * * Let me thank the organisers for inviting me here today.1 The repo market is a cornerstone in the transmission of monetary policy. In its traditional role, it is a prime short-term funding market for banks. Before the outbreak of the global financial crisis, secured transactions accounted for around a third of the daily turnover in euro area money markets according to money market statistical reporting (MMSR) data. Today, their share is closer to two-thirds. Movements in short-term repo rates therefore change the market-based financing conditions for banks and, hence, their conditions for trading with their ultimate customers – firms and households. This means that repo rates are a prime channel through which changes in the monetary policy stance are transmitted to the broader financial market and the real economy. In addition, the repo market plays an important intermediation role in the financial system by being the main vehicle for sourcing and financing government bonds. In this role, the repo market critically supports the liquidity of the bond market. It offers investors the possibility to finance long positions and to borrow securities to deliver into short positions. Interruptions in the repo market may therefore affect the entire term structure of interest rates.

Whilst the global financial crisis has provided Islamic finance with a unique opportunity in the international financial system, the future success of the industry moving forward, will also depend on its continuing ability to innovate more indigenous shariah-based instruments and evolve business models that strengthen the nexus of Islamic finance with the real economy. An essential part of the overall infrastructure therefore is an effective legal framework to provide an enabling environment that will enforce the legality of contracts according to the Shariah and the regulatory treatment of the new and innovative Islamic financial solutions. 2  BIS central bankers’ speeches  While Islamic finance practitioners and scholars continue to draw from the source of fiqh muamalat to create new and innovative instruments, the legal framework needs to be further strengthened to ensure alignment with new market developments. This is to ensure that it continues to lend certainty and predictability to the innovative products and financial transactions. Furthermore, as Islamic financial activities venture beyond national boundaries, the development of legal frameworks that is facilitative of cross-border transactions is pivotal. There has to be court recognition and acceptance of the Islamic contracts within the common and civil law systems, with a common approach of interpreting the rights of the contracting parties based on Shariah principles, in particular for cross-border transactions. Malaysia has taken the approach to address this imperative via the Law Harmonisation Committee which was established in 2010.