In order to improve the multi-level repo market system, better serve the institutional investors, and promote the healthy development of the bond market on the Shanghai Stock Exchange (SSE), recently the SSE and China Securities Depository and Clearing Co. Ltd. (CSDC) issued and implemented the "Interim Measures of SSE and CSDC for Transactions and Settlement of Bonds in Collateralized Tri-party Repo" (the "Interim Measures" for short) based on learning from the mature experience gained by the overseas repo markets and extensively soliciting and absorbing the opinions in the market.
The tri-party repo business aims to provide a safe, efficient and convenient financing platform for all kinds of financial institutions. The exchange market has previously launched the standardized collateralized repo business and the individualized agreement repo business. The standardization degree of the tri-party repo is between the collateralized repo and the agreement repo, and integrating the effectiveness of the collateralized repo and the flexibility of the agreement repo, it reduces the cost of negotiation between the two sides and facilitates the risk management in the duration through the centralized and specialized collateral management. The introduction of the tri-party repo business will further improve the multi-level repo business system in the exchange market.
The Interim Measures defines the specifications of the tri-party repo business in the aspects such as investor suitability, collateral management, transaction settlement arrangements and continuity management. The tri-party repo is an important variety of the repo business on the overseas bond markets, and the tri-party repo business launched by the SSE and CSDC has the following features: first of all, the tri-party repo business is subject to the access registration management, which imposes strict access restrictions on the sell-repo side with the credit whitelisting system set up in a bid to effectively control the risks for the participating parties; secondly, eight comparatively standardized collateral bond baskets are set for the tri-party repo business based on the bond variety, credit rating and other factors, and the measure will help improve the efficiency of transaction settlement; thirdly, the third-party agencies will provide centralized management of collaterals, with the measures including the selection of collaterals and implementing the marking to market on the collateral bonds in the duration; fourthly, a mechanism for handling collaterals for default has been introduced into the tri-party repo in a bid to free the counterparty from the worry about default.
Earlier, the SSE and CSDC publicly solicited opinions from the market on the Interim Measures at the end of January 2018. All the market participants have paid close attention, and various institutions including the participants in trading and settlement were active in providing feedbacks and comments. As the SSE and CSDC have carefully analyzed the opinions and suggestions, the Interim Measures will ensure that the tri-party repo business soon to be launched can better meet the needs of the market institutions on the basis of fully drawing on the market feedbacks.
In the near future, the SSE will step up the organization and promotion of the tri-party repo business through special training sessions, forums for key institutions and other initiatives, so as to speed up the cultivation of the market. It will also continue to make improvements based on the opinions of the market institutions, increase the operating efficiency and convenience of the business, and boost the role of the tri-party repo as an important instrument of liquidity management for financial institutions, with a view to further enhancing the development of the multi-tiered repo market system.
