Triparty repo launched in China’s inter-bank bond market
New policy can reduce settlement failure and also help to ensure effective coverage of risk exposure
The People’s Bank of China officially launched the triparty repo in the inter-bank bond market in an announcement released on Tuesday, Securities Daily reported.
The triparty repo refers to the repurchase transaction in which the investor voluntarily entrusts the bond registration, depository and settlement institution recognized by the central bank as a third party to select, evaluate, replace and adjust their collateral.
An insider in the central bank pointed out that the triparty repo is a common business model in matured markets around the globe.
The two parties in the transaction only need to discuss the amount, interest rate and term of the financing, while the third party will be in charge of the selection and valuation of the collateral.
This can help reduce settlement failure, and also help to ensure effective coverage of risk exposure during the repurchase period.
For now, only bond registration, depository and settlement agencies can serve as a third party. Large-scale banks with corresponding capabilities in the future can also provide such services.