Leading stock exchange NSE today launched 'Tri-Party Repo Market' platform in its debt segment to facilitate repurchase (repo) of corporate debt securities.
The platform is a kind of repo contract where a third entity, apart from the borrower and lender, called tri-party agent acts as an intermediary to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction.
At the launch of the platform, NSE MD & CEO Vikram Limaye said: "The corporate bond market in India needs improved liquidity because a holder of a corporate bond typically ends up holding the security to maturity."
Repo on corporate debt provides opportunity to borrow against the securities and provides short-term liquidity to participants, Limaye said.
Availability of tri-party repo can increase demand for corporate bonds and may provide a boost to much needed liquidity in the corporate bond market, he said.
Under corporate bond repo a firm or a bank pledges corporate bonds with another company or lender to garner funds. The entity, who makes pledges, agrees to repurchase the bonds at a specified price.
In a statement, the National Stock Exchange (NSE) said that initially it will offer basket repo for 1 day to 7 days.
The basket repos would facilitate borrowing and lending of funds against various baskets of corporate debt securities and the baskets would include corporate bonds, certificate of deposits and commercial papers.
"Participants will be able to provide securities forming part of the basket as collateral towards repo," the exchange said.
NSE would act as tri-party agent and offer an online web based, anonymous, order matching and multilateral trading platform to facilitate repo transactions and would also avail the services of National Securities Clearing Corporation Ltd (NSCCL) for performing collateral services including collateral valuation, margining, and settlement.
"Settlement of repo transactions shall be guaranteed by NSCCL. This eliminates counter party risk, and would results in higher and wider participation in the corporate bond market," NSE said.
The tri-party repo market platform is available to entities permitted by the RBI and who are members of NSE's debt segment.
In August last year, RBI had issued tri-party repo directions allowing recognised stock exchanges and clearing corporations to act as tri-party agents.