Repo Services

Repurchase agreements are financial transactions that involve the sale of a security and the subsequent repurchase of the same security. Hence the name “repurchase agreement” (or repo, for short).

Repos are typically short-term transactions—usually overnight—but GSD will novate trades for up to two years. Repos enable brokers, dealers, banks and other market participants to sell securities in order to obtain immediate funds for their own accounts, or for the benefit of their clients. They likewise enable the buyers of the securities to earn short-term interest on their funds. In effect, the securities function as collateral for short-term loans.

DTCC’s Fixed Income Clearing Corporation (FICC), through its Government Securities Division (GSD), matches, novates, and nets DVP repo transactions with other government securities trading activity, including buy/sell transactions and U.S. Treasury auction purchases due to settle on the next business day, as part of its netting process. GSD also matches, novates and settles repo transactions that are due to settle on the day of trade execution (“Same-Day Settling Trades”). See GSD Same-Day Settling Service for further information.

As a secured form of financing, repos offer market participants more favorable terms than traditional money market cash lending transactions. Reverse repos are used by institutions to earn income on their excess cash reserves. When the securities are sold, the sellers simultaneously agree to repurchase the securities on a specified day at a given price, including interest calculated using a rate agreed upon at the time the sale takes place. The portion of the repo transaction when the security is sold is referred to as the “start” leg, while the subsequent repurchase is called the “end” leg. The collateral provider is called the “borrower” or “repo party”, the cash provider is called the “lender” or “reverse party.” Except for a forward starting repo, the “start leg” of a typical repo will settle trade-for-trade. The “Start leg” of a forward starting repo and the “end leg” of most repos will be netted with other eligible trade activity the night before the respective settlement date.

• Who Can Use this Service

  A Direct Participant of GSD who participates in GSD’s Netting and Settlement Service can request to become a Repo Netting Member through the Repo Service. Access to both the Repo Service and the Netting and Settlement Services is also available to Indirect Participants through GSD’s Agent Clearing Service and Sponsored Service. The GSD’s Agent Clearing Service permits current GSD Netting Members, when they function as “Agent Clearing Members,” to submit trades on behalf of Executing Firm Customers. The Sponsored Service permits full-service GSD Netting Members, in their capacity as Sponsoring Members to sponsor into membership and submit on behalf Sponsored Members, transactions in eligible securities for clearing.

• Benefits

  By submitting repo transactions to GSD for clearing, participants derive a full range of benefits, including:

  • Minimized Risk Through Guaranteed Settlement—By acting as the central counterparty to all repos that enter its netting system, FICC guarantees the completion of settlement for both parties of the transaction.
  • Reduced Capital Requirements Through Balance Sheet Offsets—FICC’s netting and settlement procedures for repos facilitate the ability for members to maximize the availability, per the requirements set forth in FASB Interpretation No. 41, of balance sheet netting.
  • Automated Coupon Tracking—FICC passes the coupon payment from the holder of a security (reverse party) to the borrower (repo party) when the repo term crosses coupon payment date.
  • Reduction in Securities Movements—As a result of netting, the total daily settlement obligations of participants are substantially lowered. Fewer Fedwire movements translate into reduced costs for securities movements, less exposure to daylight overdraft charges, and less risk from operational failure.
  • Complete Audit Trail and Automated Reporting—Detailed reporting of all repos submitted to GSD’s Real-Time Trade Matching (RTTM®) Web application by GSD Netting Members is available for consumption on a real-time basis through interactive messaging output, and twice daily through Machine Readable Output (MRO). GSD also provides GSD Members a User Interface through the GSD RTTM Web Front End (WFE).

  Through trade novation, FICC guarantees that participants will receive their repo collateral back at the close of the repo transaction, while reverse participants will receive the start amount paid at the repo’s inception, plus interest. Trade details for the start and end legs are submitted as a single transaction, reducing errors and improving efficiency.

• How the Service Works

  Participants execute repos with GSD Netting Members and then submit them via the GSD RTTM Web application for matching, comparison, risk management, netting and/or, settlement. GSD supports the submission of the following types of repos:

  • Overnight—Repos that start today with an end date of the following business day
  • Term—Repos that start today with an end date of more than one business day but up to two years in the future
  • Forward-Starting—Repos that have a start date of one or more business days greater than the trade date.
  • Repo-to-Maturity—Repos in which the repo end date is the same as or later than the maturity date of the underlying security
  • GCF Repo®—GCF Repos allow dealers to trade general collateral repos, based on rate and term, throughout the day on a blind-brokered basis. See GCF Repo Service for more information.
  • Sponsored General Collateral (GC)—Allows Sponsoring Members to transact financing transactions with their Sponsored Members on a general collateral (GC) basis and settle those transactions on the tri-party repo platform of BNY Mellon in a similar manner to the way Sponsoring Members and Sponsored Members settle tri-party repo transactions with each other outside of central clearing. See Sponsored Service for more information.

  The GSD also supports the ability to substitute securities used as collateral in a term repo currently on the books of the GSD. GSD Repo Netting Members submit details regarding the collateral substitution into GSD RTTM Web and send collateral substitution requests using an automated facility. See Repo Collateral Substitution Service.

• For More Information

  To request additional information, please visit the Client Center.