The General Collateral Finance (GCF) Repo Market is a blind brokered interdealer market. This means the dealers involved in the transactions are unaware of the participants. All trades are arranged by interdealer brokers that preserve the participant's anonymity.
Financial institutions involved in this market can only utilize securities that settle on the Fedwire Securities Service as collateral.
The clearing bank settles all trades by using tri-party repo infrastructure.
For dealers, the GCF market has several functions:
- Some use the market for a substantial share of their inventory financing, on
an ongoing basis. - Dealers can also use GCF repos to fine-tune their financing at the end of the day, lending cash if they have secured more financing than they need or borrowing cash if they are short.
- GCF repos is used for collateral upgrades, borrowing cash against agencies’ MBS collateral and reinvesting the cash against Treasury securities. They may choose to do this because it is easier to finance Treasury securities than agency MBS outside of the GCF market or because they need to make a pledge to a central counterparty that accepts only Treasuries as collateral.
A great portion of the overall the repo market is general collateral.