When eligible collateral types and haircuts are agreed in advance, the collateral agent selects collateral that meets the conditions from the posting party's assets, revalues it regularly, and substitutes it1. A repo in which the post-trade work is handed to a third-party agent is called a tri-party repo.

Japan Securities Clearing Corporation (JSCC) has amended its rules to add a method that uses a tri-party collateral management service for depositing substitute securities in its clearing business2.

In a repo, even when a collateral agent is used, the impact of one party's default falls on the other party1.

Notes

  1. International Capital Market Association, "Frequently Asked Questions on Repo", 24 "What is tri-party repo?", paragraphs 1–3. ↩ ↩2

  2. Japan Securities Clearing Corporation, "トライパーティ担保管理サービスへの対応に伴う「ＣＤＳ清算業務に関する業務方法書の取扱い」等の一部改正について" (in Japanese), sections I and II. ↩