The Tri-Party Repo Infrastructure Reform Task Force, under the auspices of the Payments Risk Committee (PRC), issued a progress report to update market participants and provide additional detail around the previously communicated reforms addressing key infrastructure weaknesses of US tri-party repo transactions.
The Task Force is largely on track with the schedule outlined in its May 2010 recommendations and reiterates that its key end-state objective is the practical elimination of intraday credit. There are significant operational changes occurring this year which provide the necessary foundation for this objective and will require attention and action from all tri-party repo market participants.
Since June 27 all dealers have been using automated collateral substitution functionality provided by their clearing banks. This has facilitated moving the unwind for non-maturing repos (excluding rehypothecated collateral) to 3:30 p.m. EST instead of early in the morning. Starting July 25 the unwind for maturing repos (excluding rehypothecated collateral) will move to 10:00 a.m. EST.
On August 22 the unwind for all tri-party repo trades will move to 3:30 p.m. EST (excluding Interbank GCF collateral). Lastly, dealers and cash investors must have signed addendums by July 25 in preparation for August 29 when all tri-party repo transactions must be confirmed by each party to the trade in order to settle.
The Task Force has succeeded in designing and implementing important prerequisite steps toward the objective of the practical elimination of intraday credit provided by the clearing banks, says Darryll Hendricks, chairman of the Task Force. I encourage all market participants to take immediate action to ensure that they are fully prepared for the upcoming changes. These are, however, prerequisites, and the Task Force is continuing to develop the remaining steps to achieve our objectives.
Though the original goal was to fully-achieve this end-state objective in 2011, it became apparent as the Task Force worked through the details that the current settlement process will not accommodate execution of a simultaneous unwind and rewind of maturing and new trades early enough in the afternoon to be workable for market participants and a more substantial reengineering of tri-party repo settlement mechanisms may be needed.
The Task Force will continue to advance changes in this and other areas, and will release a revised timeline this fall.
(CM)