US tri-party repo reforms Europeanise market

Author: Danielle Myles | Published: 30 Aug 2011

Mandatory changes introduced this week will bring the US tri-party repo market more in line with the European market.

Starting Monday August 29 the market’s clearing banks (Bank of New York Mellon and JPMorgan Chase) must stop using the daily unwind process, whereby they extend credit to the buyer while the seller has access to its collateral, and start using an auto-substitution process.

The new process allows the seller to make daily, targeted substitutions of its collateral on a delivery verses payment basis. Transactions won’t have to be unwound, meaning clearing banks don’t continue to experience huge intraday credit exposures.

"It increases the integrity of the process and reduces the intraday...