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Don’t Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts

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Abstract

Tri-party repo is popular among securities dealers as a way to raise short-term funding. The tri-party repo settlement process has been improved, and continues to be improved, with the implementation of a set of recent reforms. Two main goals of these reforms are to sharply reduce the amount of liquidity needed to facilitate the settlement of tri-party repo contracts, and to increase the use of more resilient sources of liquidity (for example, term financing and committed credit) to ensure that settlement can occur in good and bad times. In this post, we detail how the reforms have affected the sources of liquidity that dealers can use to facilitate settlement of tri-party repo contracts. We then explain cash investors’ role in the settlement process, and highlight how their current practice of sending principal payments late in the day disrupts the timely settlement of tri-party repo contracts.

Suggested Citation

  • Adam Copeland & Ira Selig, 2014. "Don’t Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts," Liberty Street Economics 20141020, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86988
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    Keywords

    settlement; tri-party repos;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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