The Fixed Income Clearing Corp will restart interbank trading and settlement for its General Collateral Financing repurchase product on Thursday after a hiatus of about five years, the Securities Industry and Financial Markets Association said.
The announcement comes as financial markets generally have been on heightened alert to liquidity concerns of any kind after the credit crisis that erupted in the wake of last year’s housing meltdown.
Brokers had been restricted from executing repo agreements with their customers unless both customers could settle the transaction at the same settling bank.
“The shift from intrabank trading to interbank trading will offer dealers more access to liquidity,” SIFMA says in a statement.
GCF repos are widely used for flexible short-term financing because they allow for expanded trading time, greater flexibility on collateral and increased liquidity for market participants. Since they can be netted in the clearing process, they also offer reduced transaction costs.
On May 1, FICC announced that the Securities and Exchange Commission had approved its proposal to resume offering its General Collateral Finance repurchase agreement service to brokers whose customers settle their transactions at different settling banks, Econimic Times reports.