Tri-Party Repurchase Agreement
A tri-party repurchase agreement (also known as a tri-party repo) is a type of financial transaction in which three parties are involved: a borrower, a lender, and a third-party custodian. The borrower agrees to sell a security to the lender and simultaneously agrees to repurchase the same security at a later date. The custodian holds the security during the transaction and facilitates the settlement of the transaction.
The tri-party repo market is an important source of short-term funding for financial institutions. It is used by banks, broker-dealers, hedge funds, and other financial institutions to finance their operations. The tri-party repo market is also used by central banks to manage liquidity in the financial system.
The tri-party repo market has grown significantly in recent years. In the United States, the tri-party repo market is estimated to be worth more than $2 trillion. In Europe, the tri-party repo market is estimated to be worth more than €1 trillion.
History of Tri-Party Repurchase Agreements
The tri-party repo market has its roots in the early 20th century. In the 1920s, banks began to use repurchase agreements to finance their operations. These agreements were bilateral, meaning that they involved only two parties: the borrower and the lender. In the 1950s, banks began to use tri-party repurchase agreements, which involved a third-party custodian.
The tri-party repo market has grown significantly since the 1980s. In the United States, the tri-party repo market is estimated to be worth more than $2 trillion. In Europe, the tri-party repo market is estimated to be worth more than €1 trillion.
Comparison of Tri-Party Repurchase Agreements
| Type of Repo | Number of Parties | Custodian |
|---|---|---|
| Bilateral Repo | 2 | No |
| Tri-Party Repo | 3 | Yes |
Summary
A tri-party repurchase agreement is a type of financial transaction in which three parties are involved: a borrower, a lender, and a third-party custodian. The borrower agrees to sell a security to the lender and simultaneously agrees to repurchase the same security at a later date. The custodian holds the security during the transaction and facilitates the settlement of the transaction. The tri-party repo market is an important source of short-term funding for financial institutions and is used by central banks to manage liquidity in the financial system. For more information about tri-party repurchase agreements, please visit the websites of the Federal Reserve Bank of New York and the European Central Bank.
See Also
- Repurchase Agreement
- Bilateral Repo
- Securities Lending
- Reverse Repo
- Repo Rate
- Repo Market
- Repo Haircut
- Repo Margin
- Repo Rate Swap
- Repo-Style Collateralized Loan Obligation
