About Tri-party Repo Platform
A repo is a sale of securities coupled with an agreement to repurchase the securities at a specified price on a later date. It is economically similar to a secured loan. The cash lender loans cash to a borrower and receives the borrower's securities as collateral. The proceeds of the initial securities sale can be thought of as the principal amount of the loan, and the excess paid by the cash borrower to repurchase the securities corresponds to the interest paid on the loan, also known as the repo rate. The difference between the amount of cash loaned and the value of the collateral posted is called the "haircut" or "margin" and it functions act as a buffer for the lender against short-term variations in the value of the collateral.
Tri-party repo is a type of repo contract where a third entity (apart from the borrower and lender), called a Tri-Party Agent, acts as an intermediary between the two parties to the repo to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction.
The RBI has notified the introduction of triparty repo in India in its April 11, 2017, Draft Directions. The aim to introduce Tri-party repo was that would contribute to better liquidity in the corporate bond repo market, thereby providing markets an alternate repo instrument to Government securities repo. Tri-Party repos are transacted through a Tri-Party agent in terms of Tri-Party Repo (Reserve Bank) Directions dated August 10, 2017.