Toby Nangle reports that JPMorgan analysts see a surge in asset‑backed commercial paper (ABCP) issuance, which is tightly linked to rising equity repo volumes. The note from Teresa Ho, Pankaj Vohra, and Molly Herckis argues that alternative ABCP programmes now serve as off‑balance‑sheet funding for banks’ prime‑brokerage and securities businesses.

Since the financial crisis, ABCP shifted from bank‑sponsored multiseller programmes to alternative conduits backed by financial securities such as short‑term secured loans to broker‑dealers collateralised with US Treasuries. S&P Global Ratings says this evolution is driven by G‑SIBs seeking balance‑sheet optimisation under Basel rules.

DTCC data shows the ABCP market has grown by $100bn this year, with $60bn added in the last two months as equity financing costs jump. The chain lets hedge funds pledge stocks to prime brokers, who borrow from ABCP conduits funded by money‑market funds, giving leveraged investors cheap cash while cash‑rich investors earn a modest spread.

Risks remain, but recent market stress tests have not broken the chain, illustrating how nervous cash holders may be indirectly fuelling stock‑market leverage.