RBI issues draft on tri-party repo trade

The Reserve Bank today released the draft framework on tri-party repo facility, which when introduced, will enable market participants to use the underlying collateral more efficiently and facilitate development of the term repo market.
The draft directions allow introduction of tri-party repo on both government securities and corporate bonds.
The central bank has sought comments on the 'Draft tri-party repo Directions, 2017' from market participants by May 5.
Tri-party repo is a type of repo contract where a third entity (apart from the borrower or lender) acts as an intermediary between the two parties to the repo to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction, the central bank said.

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.

The RBI said eligible collateral for tri-party repo will be those securities as specified in repo directions FMRD issued on February 3, 2015 and August 25, 2016, while eligible participants will be those as specified in repo directions of February 3, 2015 and August 25, 2016.

Tri-party repos can be traded over-the-counter (OTC), including on electronic platforms, and will have be reported within 15 minutes of the trade to the tri-party agent (or the third entity).
On the proposed tenor, settlement, haircut and disclosures norms, the draft said these will be identical to those applicable to normal repos, as specified on rep directions issued on February 3, 2015 and August 25, 2016 or as permitted by RBI from time tom time.
Applicants should have minimum net owned funds of Rs 25 crore which should be maintained at all times.