RBI issues draft on tri-party repo trade
|Source: The Hitavada Date: 12 Apr 2017 09:33:32|
The Reserve Bank on Tuesday 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.
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.