Aug 12, 2017 12:39 PM IST | Source:

RBI issues rules for tri-party repo contracts

Tri-party repo is a type of repo agreement where a third entity acts as an intermediary between two parties

In order to support the growth of the corporate bond repo market, the Reserve Bank of India (RBI) on Thursday issued norms for tri-party repo contracts, including Rs 25 crore as minimum equity capital for an entity to work as a tri-party agent.

Tri-party repo is a type of repo contract where a third entity (apart from the borrower and lender) called a tri-party agent acts as an intermediary between the two parties.

The services of agents cover activities such as collateral selection, payment and settlement, custody and management during the life of the transaction.

Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase securities on a mutually agreed future date and price that includes interest for the funds borrowed.

On the other hand, reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell them on a mutually agreed future date and price, including interest.

In the guidelines on Thursday, RBI said, tri-party repo may be traded using any trading process permitted by the central bank.

Tri-party repo may be traded over-the-counter (OTC), including on electronic platforms, or stock exchanges. All trades would have to be reported within 15 minutes of the trade for public dissemination to the Clearing Corporation of India, exchanges or authorised reporting platform.

All tri-party agents need a prior nod from the RBI to act in that capacity. Scheduled commercial banks, recognised stock exchanges and clearing corporations of stock exchanges are eligible to be tri-party agents.

Introduction of tri-party repos will likely contribute to better liquidity in the corporate bond repo market. This will provide markets an alternate repo instrument to government securities repo, the banking regulator had said in its monetary policy review on August 3.

The central bank had sought comments on the 'Draft tri-party repo Directions, 2017' from market participants by May 5.
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