Repo Trading Practice Guidelines Published

In order to promote greater efficiency and liquidity in the repo markets, the Association recently published a Supplement to its Restated Repo Trading Practice Guidelines. The supplement recommends, on an interim basis, the same-day designation of “high-volume days.”

    Under the supplement, the Association would designate a high-volume trading day once it is informed by the Government Securities Clearing Corporation (GSCC) that its interdealer broker participants expect to receive, in the aggregate, more than 150 collateral substitution requests on a particular trading day.

    Under existing GSCC rules, the deadline for collateral substitutions—normally 12 noon—is extended by one hour upon the Association’s designation of a “high-volume day.” The extension gives market participants additional time to notify GSCC of collateral substitutions and ensure that they are processed.

    Section I.3 of the Restated Repo Trading Practice Guidelines currently provides for the extension of collateral allocation deadlines on “high-volume days,” defined as “the first and last business day of each calendar quarter on which the markets are open for trading and such other days as The Bond Market Association may announce no later than 24 hours prior to the occurrence of such day.”

    However, “given the recent unpredictable occurrence of days on which a large number of collateral substitution requests occur, the Association is recommending this expedited process to provide for the same-day designation of “high-volume days,” said Omer Oztan, Vice President and Assistant General Counsel.

    The Association believes that the supplement will increase efficiency in the repo markets, since market participants will know that, if necessary, they will be allowed additional time to submit collateral substitution requests on trading days when the repo markets experience a high volume of such substitutions, Oztan added.

    The interim supplement will be revised upon a rule change by the GSCC allowing it to institute a same-day extension of its repo collateral substitution notification deadlines on days other than “high-volume days” as designated by the Association.

    The Association’s Repo Trading Practice Guidelines are recommendations only. They are intended for use by Association member firms in order to promote the smooth functioning of the market for securities. The recommendations are not intended to and should not restrict the flexibility of counterparties to negotiate the specific terms of any particular repo transaction.

    A copy of the new Restated Repo Practice Guidelines is available on the Association’s Web site.

    For more information, contact Omer Oztan at 212.440.9474.

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