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TRIPARTY REPO DEALING AND SETTLEMENT (TREPS) - A PRIMER

Sahana Rajaram and Payal Ghose¥

Triparty repo is a repurchase transaction in which the 2018. Upon introduction of triparty repo clearing by
management of the collateral is delegated by the CCIL, the Triparty Repo Order Matching Platform
borrower and lender to a third-party intermediary. In (TREPS) of Clearcorp Dealing Systems (India) Ltd.
line with its announcement in the Sixth Bi-monthly (CCDS) also became operational. This write-up is
Monetary Policy Statement for 2017-18, Reserve an introduction to the various features of the new
Bank of India (RBI) released comprehensive product.
guidelines for the Indian repo market in July 2018,
1. Overview of the Interbank Money Market
paving the way for introduction of triparty repos in
in India
the Indian market. RBI has authorized the Clearing
Corporation of India Limited (CCIL) to act as a The Indian overnight interbank money market is
Triparty Repo Agent and also to offer Triparty Repo primarily divided into two sections - collateralized
in Government Securities as per its Repurchase and uncollateralized. While the uncollateralized call
Transactions (Repo) (Reserve Bank) Directions, segment remains the bellwether for systemic
2018. CCIL commenced acting as Triparty Repo liquidity and the operating target for the central
Agent (TRA) and undertaking central counterparty bank's monetary policy decisions, it accounts for less
(CCP) clearing of triparty repo transactions under its than 10% of the daily volumes. The remaining share
securities segment with effect from November 5, is accounted for by the collateralized instruments.

Chart 1: Indian Money Market: Average Daily Activity

180
16
160 15

140 16
120

100 14
` Thousand Crore

15 13

Monthly Newsletter December 2018

80 9 155 158
17 129
60 10 14
96
40 84 86
76
56 51 60
20

0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
(H1)
Collateralized Segment (Repo and CBLO) Uncollateralized Segment (Call)
Source: CCIL

¥
Ms. Sahana Rajaram is Jr. Vice President and Ms. Payal Ghose is Sr. Manager, Economic Research
CCIL

and Surveillance, CCIL. The authors acknowledge the guidance from Dr. Golaka C. Nath,
Mr. Pradeep. K. Naik, Mr. N. Venkatraman and Dr. Vardhana Pawaskar.

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The unsecured call money market is an interbank based instrument as observed in the rapid acceptance
market segment for borrowing and lending funds and popularity of CBLO, ushered in a complete
without any collateral which was converted into a change in the profile of the Indian money market.
pure interbank market (including Primary Dealers RBI initiated the development of the NDS-CALL
(PDs)) in August 2005. 'Collateralized Borrowing platform - a screen-based negotiated quote-driven
and Lending Obligation' (CBLO) was a new product system for all dealings in call/notice and term
launched by CCIL on January 20, 2003 to provide an money markets - which was launched on its behalf
alternative avenue for short term liquidity and is maintained by CCIL from September 18,
management for the market participants restricted 2006. Launched on January 27, 2009, the 'Clearcorp
and/or being phased out of call money market. It Repo Order Matching System (CROMS)' is the STP
was a pioneering product operating in a Straight- enabled electronic anonymous order matching
through-Processing (STP) enabled environment, platform for dealing in market repos in government
seamlessly moving from trading to settlement. It securities.
dominated the money market as the participants
The introduction of the CROMS trading platform
appreciated the benefits of an anonymous, order
improved transparency in the Indian repo market,
driven and online trade matching system which
while it introduced globally accepted repo features
ensured efficient price discovery and transparency
through the Basket Repo and Special Repo. Basket
particularly for the smaller players.
repo gave to the Indian market, for the first time an
With CCIL as the CCP guaranteeing all the trades opportunity to use a repo as a financing instrument
t h ro u g h t h e p ro c e s s o f n o v a t i o n a n d without recourse to any specific security. Basket
borrowing/lending taking place through an repos enable dealing in baskets wherein repoable
electronic anonymous order matching platform, securities classified on basis of instrument type,
smaller players like co-operative banks were able to liquidity and outstanding tenor are clustered
trade on par with the bigger participants and could together. While borrowers can raise funds against
get competitive rates for their fund management. any of the securities forming part of the basket, the
The transparency provided by the screen based lender is assured that he would only receive securities
trading coupled with the online dissemination of forming part of the concerned basket. Details of the
information about orders, rates, and trades security allocated are provided to both
Monthly Newsletter December 2018

encouraged active trading in this market. counterparties post trade. In the case of special repo,
Participants could reckon unencumbered securities which is the conventional repo, both borrowers and
for RBI's Statutory Liquidity Ratio(SLR) lenders are aware of the underlying security against
calculations while automated value-free transfer of which the deal is sought to be concluded leading to
securities between market participants and the CCIL its wide use in covering short sale positions.
was introduced during 2004-05 for higher efficiency.
Maturity of the CBLO and market repo segments
In the initial years (until November 21, 2009), the
had an important role in aligning short-term money
operations in CBLO were exempted from RBI's Cash
market rates to the policy rate corridor. With NDS-
Reserve Requirement (CRR) as a special case. As a
CALL, CROMS and CBLO the Indian money
result, CBLO soon assumed a dominant role in the
CCIL

market turned primarily into an electronic one with

money market.
only a few deals being negotiated between the
The widespread acceptance of an anonymous screen- participants in the OTC market.

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CCIL was authorized by RBI, to act as a Triparty between the lenders and borrower's respective
Repo Agent undertaking CCP clearing of Triparty accounts.
Repo transactions under its securities segment with
• In a triparty repo the borrowers (collateral
effect from November 5, 2018. CBLO was converted
providers) finalize their securities allocation
into Triparty Repo on November 5, 2018. Triparty
decision later in the day, unlike in a bilateral
Repo enables the lender to get visibility of the
repo transaction where they have to deliver the
security it has lent money against which was not
specific security earlier during the day.
available under the structure of CBLO.
Box 1: A Timeline of Key Events
April, 1997 Repo permitted in all G-secs to SGL account holders.

February, 2002 Negotiated Dealing System (NDS) (Phase I) and CCIL operationalized.

January, 2003 Launch of CBLO.

February, 2003 Eligibility to participate in the repo market was extended to non-banks.

January, 2009 Launch of CROMS facilitating dealing in two kinds of Repos viz. Basket Repos and Special Repos.

April, 2017 Draft Tri -Party Repo (Reserve Bank) Directions, 2017 released.

August, 2017 Tri -Party Repo (Reserve Bank) Directions, 2017 released.

March, 2018 Draft Repurchase transactions (Repo) (Reserve Bank) Directions, 2018 released.

July, 2018 Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018 notified.
Introduction of Triparty Repo by CCIL and operationalization of the Triparty Repo Order Matching
November, 2018
Platform of CCDS.

2. Overview of Triparty Repo • The securities given as collateral in a triparty

repo cannot be re-pledged outside the triparty
A triparty repo is an alternate repo arrangement
platform. In the case of a bilateral repo, lenders
which seeks to provide borrowers control over their
receive control over the securities posted as
unencumbered collateral, with minimal settlement
collateral.
costs to the lender and independent confirmation

Monthly Newsletter December 2018

that their lending is fully collateralised. In this • Triparty repo involves a “general collateral”
arrangement, the borrower delivers the collateral to transaction, where the lender receives any
an independent custodian, which places the same in security within the specified security class
a segregated triparty collateral account. The acceptable to it. In the case of a bilateral repo,
borrower has control over the securities in the the specific security agreed at the time of the
account, while the custodian ensures that the lender transaction has to be delivered.
is always collateralised with securities of acceptable
• Simplified legal documentation for instant
asset quality.
access to a large number of counterparties.
Key features of triparty repo:
In the United States, Bank of New York Mellon and
CCIL

• Triparty repo trades' securities settle on the JP Morgan Chase handle triparty repos. These banks
books of the triparty agent and cash moves maintain the cash and securities accounts for the

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counterparties of the repo transactions and settle the between participants to the repo transaction and
cash and securities transfer on both the legs of the clearing banks.
repo. Typical lenders in a triparty repo market are
On the other hand, the European repo markets have
cash-rich and risk averse investors like money market
quickly recovered from the crisis supported by strong
mutual funds, pension funds, insurance companies,
infrastructural measures like development of CCP
official sector investors like central banks,
clearing, electronic trading systems, sophisticated
supranationals, large corporate treasuries, etc. The
collateral management systems and innovative
borrowers in this market are largely securities dealers.
products. In the European triparty repo market, the
The collateral used in the triparty repo market is
triparty agents, Euroclear and Clearstream are not
dominated by US Treasury securities followed by
involved in repo transactions, unlike the clearing
Agency MBS and CMOs1 In Europe, the principal
banks of the United States. They provide fully
triparty agents are Clearstream Luxembourg,
automated systems for collateral selection,
Euroclear, Bank of New York Mellon and JP Morgan.
allocation and substitution, eliminating the
Here the collateral is largely government securities
unwinding process as in the United States. The
followed by public agencies/sub-national
collateral is selected in such a way that it maximizes
governments2. In all these markets, the TRAs provide
the efficiency of collateral providers.
intermediation services only. They do not provide
CCP guaranteed settlement services for these 4. Triparty Repo Dealing and Settlement -
products. Indian Government Securities

3. Current Trends in Global Triparty Repo CCIL facilitates triparty repo transactions in Indian
Markets Government Securities. All entities eligible for repo
transactions in terms of the RBI Repurchase (Repo)
The structural weakness in the US triparty repo
(Reserve Bank) Directions 2018, can undertake
market prior to 2008 was brought forth during the
triparty repo. The eligible entity needs to be a
global financial crisis of 2008, with the US Task
member of Triparty Repo (Dealing) Segment of
Force on Triparty Repo Infrastructure (2009) stating
CCDS and also a member of CCIL's securities
that “Triparty repo arrangements were at the center
segment. CCIL is both the TRA maintaining gilt
of the liquidity pressures faced by securities firms at
accounts for members of its securities segment who
Monthly Newsletter December 2018

the height of the financial crisis”, though they

would be undertaking borrowing and lending of
concluded that the available data suggested that
funds under the triparty repo trades as well as the
margins in the Triparty repo market did not increase
CCP in this segment. Participants are required to
much during the crisis, if at all. But the crisis served
contribute collateral in the form of cash and
as a wake-up call for all the entities in this market,
government securities as notified by CCIL from time
with the regulators and market participants pushing
to time. Borrowing limits are determined based on
for market infrastructure reforms in terms of
collateral contributions of the participants. The
automated collateral substitution systems,
securities debit for the borrower and credit to lenders
settlement of new and maturing repo transactions at
is achieved as part of settlement process after closure
the same time and a trade confirmation system
CCIL

of dealing hours for T+0 settlement. RBI has brought

1
www.sifma.org- US-Repo-Factsheet-2018-09-18
2
International Capital Market Association European Repo Market Survey - June 2018

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the reserve requirements at par with that of market 6. Risk Management at CCIL for Triparty
repos and has also given SLR benefit to fund lenders Repo
for securities received under Triparty Repo lending.
The standard risk management processes such as
5. Triparty Repo Trading - Triparty Repo initial margin, borrowing limits, identification of
Anonymous Order Matching System eligible collateral, haircuts on eligible collateral,
(TREPS) mark to market margins (MTM) and volatility
margin are applicable for Triparty Repo trades. There
Trading in the triparty repo is conducted over the
is a default fund for Triparty Repo trades. The
Triparty Repo (Dealing) System (TREPS) a screen
exposure monitoring is online and on a pre-order
based anonymous order matching system that is
basis, ensuring that orders can be placed only if the
provided to the members of CCIL's securities
member has sufficient initial margin and/or
segment and Triparty Repo (Dealing) Segment of
borrowing limits to support the resultant trades.
CCDS. This platform can be accessed through
CCIL may temporarily impose volatility margin in
INFINET3/INTERNET. TREPS receives borrowing
case of a sudden increase in volatility in interest rates.
limits and initial margin details from CCIL for each
member based on cash and/or government securities 7. Settlement Process for Triparty Repo
contributions by respective member. Once the
CCIL acts as a central counterparty (CCP) to all
orders are matched and the trade is concluded, the
Triparty Repo trades received from TREPS platform
first leg consideration is determined by the system
and settlement is done in terms of the CCIL Bye-
based on the tenor and the repo interest rate of the
laws, Rules and Securities Segment Regulations. For
trade. Members can square off the trades or re-repo
Triparty Repo rades, securities receivable are
(i.e. lend trade can be squared off by borrow trades
determined for the net lending of each member for
and vice a versa) wherein the second leg settlement
each tenor i.e. for overnight and various terms) and
date of the squaring off trade is the same business
securities deliverable for net borrowing of each
date as the second leg settlement date of original
member for each tenor i.e. for overnight and various
trade. TREPS trades are settled through CCIL's
terms. The securities obligations are determined
Securities Segment.
together for outright and market repo trades and
separately for Triparty Repo trades. The funds

Monthly Newsletter December 2018

obligation for each member is a net funds obligation
for outright, market repo and Triparty Repo trades.
CCIL

3
The Indian Financial Network - a Closed User Group Network for the exclusive use of its member banks and financial institutions.

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8.Basket Repo and Triparty Repo- A Comparison

Category Basket Repo Triparty Repo
Platform CROMS TREPS
Minimum period of one day and a Minimum period of one day and a
Tenor
maximum period of one year. maximum period of one year.
Triparty Repo is in the nature of GCF
Classic Repo wherein security is
Nature Repo wherein security is identified at the
identified at the time of trade
time of settlement.
Repurchase Transactions (Repo) (Reserve Repurchase Transactions (Repo) (Reserve
Regulatory Framework
Bank) Directions, 2018 Bank) Directions, 2018
(a) Any regulated entity. (a) Any regulated entity.
(b) Any listed corporate. (b) Any listed corporate.
(c) Any unlisted company, which has (c) Any unlisted company, which has
been issued special securities by the been issued special securities by the
Government of India, using only such Government of India, using only such
special securities as collateral. special securities as collateral.
Eligible Participants (d) Any All India Financial Institution (d) Any All India Financial Institution
(FIs) viz. Exim Bank, NABARD, NHB (FIs) viz. Exim Bank, NABARD, NHB
and Small Industries Development Bank and Small Industries Development Bank
of India (SIDBI), constituted by an Act of India (SIDBI), constituted by an Act
of Parliament. of Parliament.
(e) Any other entity approved by RBI (e) Any other entity approved by RBI
from time to time for this purpose. from time to time for this purpose.
Done by CCIL at the time of settlement,
Collateral Selection Done by the borrower of funds from securities contributed by borrower
of funds
Collateral Type G-Sec, SDL, T-Bill G-Sec and T-Bill in Phase 1
Security Credit To Lender Of Funds Yes Yes
Collateral information received by
Possible as collateral information
participants at the time of settlement.
Individual Security Wise Accounting received by participants immediately
Securities to be identified for netted
post trade
position for each Triparty Repo tenor.
Funds borrowed under repo in Funds borrowed under Triparty Repo in
government securities exempted from government securities exempted from
CRR/SLR computation and the security CRR/SLR computation and the security
Regulatory Exemptions
acquired under repo is eligible for SLR acquired under Triparty Repo is eligible
provided the security is primarily for SLR provided the security is
eligible for SLR primarily eligible for SLR
Contract Type Buy/Sell Repo Buy/Sell under Triparty Repo
Repo interest is the difference between Repo interest is the difference between
Pricing the first leg consideration and second leg the first leg consideration and second leg
consideration of the repo transaction consideration of the repo transaction.
Monthly Newsletter December 2018

Counterparty Selection Anonymous Anonymous

Settlement Agency CCIL is the CCP CCIL is the CCP
Settlement of securities and funds is on Settlement of securities and funds is on
Settlement Basis
net basis. net basis.
Participants can square off the trades
viz; Re-Repo (i.e. lend trade can be
squared off by borrow trades and vice a
Squaring-Off Position Not possible. versa) wherein the second leg settlement
date of the squaring off trade shall be
the same business date as second leg
settlement date of original trade.
Securities can be changed by the
borrower intraday till the cut-off time
for end of trading session (up to 2:30
CCIL

PM for DSB settlement and up to 3:00

Substitution No substitution post trade
PM for RBI settlement). After cut off time
except for the securities debited towards
borrowings under Triparty Repo, other
securities can be substituted.

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Category Basket Repo Triparty Repo

On the day of maturity, the borrowing
limit of the members which is blocked
for the amount borrowed is released in
Rollover Rollover is possible on the maturity date
the morning enabling the borrowers to
borrow again using the same underlying
collateral.
9:00 AM to 2:30 PM for T+0 DSB
9:00 AM to 2:30 PM for T+0 settlement; settlement;
Time for Trading Activities
9:00 AM to 5:00 PM for T+1 settlement. 9:00 AM to 3:00 PM for T+0 RBI
settlement;
9:00 AM to 5:00 PM for T+1 settlement.
The Repo rate is the interest paid by the The Repo rate is the interest paid by the
Collection of Interest
Repo borrower to the lender. Repo borrower to the lender.

9. To Summarize References:

The benefits of Triparty Repo for fund borrowers i. Changing Dynamics of the Indian Money
includes RBI dispensation of reserve requirements Market; Vachharajani Aparna, Ghose Payal and
on borrowing outstanding on reporting Fridays, Rajaram Sahana, Rakshitra November 2010
substitution of securities and the ability to square off
ii. Evolving Dynamics of the Repo Market;
borrowing positions. The benefits to the fund
Rajaram Sahana and Ghose Payal, Rakshitra
lenders includes visibility of security, SLR benefit if
November 2013
the security is primarily SLR eligible and the ability
to square off lending positions. Triparty Repo is iii. Key Mechanics of The U.S. Tri-PartyRepo
expected to become a market changer due to Market; Copeland Adam, Duffie Darrell,
immense benefits it brings to both the borrowers and Martin Antoine and McLaughlin Susan;
the lenders. FRBNY Economic Policy Review

iv. A primer on tri-party repo - Comotto Richard,

International Capital Market Association
(ICMA)

Monthly Newsletter December 2018

CCIL

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