RBI issues rules for tri-party repo contracts

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 ~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.

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 RBI had said in its monetary policy review on August 3.

The RBI said tri-party repo may be traded using any trading process permitted by the central bank. Tri-party repo may be traded overthe-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.