Triparty repo

In an ordinary repo, borrower and lender deal with each other directly and must manage the collateral themselves. In a triparty repo, a third entity, the Triparty Agent (TPA), sits between them.

The TPA picks the collateral, moves the money and securities, keeps the securities in custody and manages them for the life of the deal. The borrower and lender simply agree the amount and tenor.

The workbook describes two versions: triparty repo in Government Securities, traded on TREPS with CCIL as agent and central counterparty, and exchange-traded triparty repo in corporate debt securities, where AMC Repo Clearing Ltd (ARCL) is the agent.

Triparty repo in Government Securities (section 1.3 e)

• RBI authorised CCIL to act as a TPA.
• The Tri Party Repo Dealing System (TREPS) is an anonymous order matching platform provided by Clearcorp Dealing Systems (India) Ltd, with CCIL as Central Counterparty, for borrowing and lending against G-secs.
• All repo-eligible entities can trade on TREPS.
• Funds borrowed on TREPS are exempted from RBI's CRR/SLR computation, and the security acquired is eligible for SLR for the acquiring bank.
• Unlike repo, TREPS facilitates trading of repo, and the seller of the security has a right to substitute the security.

Exchange-traded triparty repo in corporate debt (section 1.3 k)

• Available for trading on the exchanges, in the Exchange Debt Market Segment (sub-segment Tri-party repo Market).
• Aim: to improve liquidity in the corporate bond market.
• Transacted as per RBI directions.
• AMC Repo Clearing Ltd (ARCL), a limited purpose clearing corporation (LPCC), is the tri-party agent; it clears and settles the trades and provides settlement guarantee.

Elsewhere in the workbook. Chapter 4 (section 4.1.5) allows client funds upstreamed via Mutual Fund Overnight Schemes only where the schemes invest in overnight G-sec repo and overnight TREPS. Chapter 5 (section 5.2, interoperability) lists tri-party repo among the products excluded from clearing corporation interoperability.

Amounts are illustrative.

A mutual fund's overnight scheme has Rs 50 crore idle. A bank needs Rs 50 crore for three days against G-secs.

1. Both place orders on TREPS. The platform is anonymous, so neither knows who is on the other side.
2. CCIL, as TPA and central counterparty, selects eligible G-secs from the bank, holds them in custody and moves the Rs 50 crore to the bank.
3. On day 2 the bank needs one of those G-secs back. As the seller of the security it has a right to substitute another eligible G-sec, and CCIL handles the swap.
4. On day 3 the bank repays Rs 50,02,50,000. The fund earns Rs 50,02,50,000 − Rs 50,00,00,000 = Rs 2,50,000, and the bank's G-secs are released.

The bank's TREPS borrowing is exempt from its CRR/SLR computation. If a corporate bond version were used instead, the trade would sit in the exchange's Tri-party repo Market with ARCL as agent and settlement guarantor.

Chapter 1 (section 1.3, items e and k) carries both triparty repo types and is where most questions come from: who the TPA is (CCIL for G-secs, ARCL for corporate debt), who provides TREPS (Clearcorp Dealing Systems), the CRR/SLR treatment and the substitution right. Chapter 4 (section 4.1.5) and Chapter 5 (interoperability) add the overnight-TREPS rule for MFOS and the exclusion of tri-party repo from interoperability.

• Two agents, two markets. CCIL for G-sec triparty repo; ARCL (an LPCC) for corporate debt triparty repo.
• TREPS is provided by Clearcorp Dealing Systems, with CCIL as CCP. Don't swap the two roles.
• Substitution right belongs to the seller of the security (the borrower).
• TREPS borrowing is exempt from CRR/SLR; the acquired security counts for SLR for the acquiring bank.
• Tri-party repo is outside clearing corporation interoperability.
• Watch the expansion of TREPS. Chapter 1 expands it as "Tri Party Repo Dealing System"; Chapter 4 (section 4.1.5) writes "Tri-party Repo Dealing and Settlement". Both refer to the same overnight G-sec triparty market.