India central bank targets tri-party repo introduction

The Reserve Bank of India has proposed a tri-party repo market in a bid to increase more efficient use of collateral in the country.

The draft framework published by the bank, which is open for public comment until 5 May, recommends the introduction of tri-party repo for both government securities and corporate bonds.

According to the central bank, such a move will allow market participants to use underlying collateral more efficiently and facilitate development of the repo market in India.

Criteria for tri-party membership is also outlined with prospective tri-party agents requiring at least five years experience in the financial sector, whether in India or abroad, preferably in custodian services.

Applicants must also possess at least INR 250 million (approximately USD$4 million) in minimum net owned funds that should be “maintained at all times.”

Under terms of the framework, tri-party agents must also take responsibility for collateral management services such as margining and income payments on collateral.

Prospective agents are also required to report trades to the trade repository within 15 minutes of receiving imitation of trade from counterparties.

The move is the latest development in the country following amendments earlier this year designed to unlock various parts of the market for investors.

In February, the Securities and Exchange Board of India (SEBI) amended strict rules for fund managers looking to trade the derivatives market.

Existing mutual fund schemes no longer require approval from a majority of unit holders to invest in derivatives as long as investors are given an exit option.