Repurchase agreement in which a third party is responsible for the management of the collateral during the life of the transaction. This can be a:
In Europe, tri-party agreements are handled by:
- Clearstream Bank Luxembourg
- Euroclear Bank
- Bank of New York Mellon
- JP Morgan
- SIS
In the United States, Bank of New York Mellon is the single clearing bank. JP Morgan was a clearing bank but ceased serving this function in 2018.
Because collateral is typically selected automatically by the tri-party agent, tri-party repo cannot be used for borrowing and lending specific securities. It is a pure General Collateral (GC) funding facility. This is reflected in the large average deal size of tri-party repo and collateralization by multiple securities.
Participants:
Dealers:
-Seller of securities with promise to buy back at a later day. In effect, the borrower in the transaction.
-Largest dealers are known as primary dealers.Cash Investors
-Those who buy the securities to sell back at a later date. They are the lenders in the market. Money market mutual funds and securities lenders are the two largest groups of cash investors.Clearing Bank(s)
Function of Tri-Party Agent
- Calculation of collateral requirements and transmission of margin calls
- Verification of collateral eligibility as margin
- Processing the delivery of collateral to a trade counterparty
- Receipt of pledged collateral and placement in a segregated account
- Ongoing monitoring for collateral sufficiency, including daily mark-to-market
- Collateral substitution
- Reporting to both parties to the trade
- At the maturation or termination of the trade, return of collateral