Clearstream has released a new legal master agreement for triparty repo transactions, aimed at simplifying and speeding up counterparty matching for buy-side market participants.
The post-trade service provider's Clearstream Repurchase Conditions (CRC), governed by Luxembourg law, allows market participants to sign one contract for multiple counterparties.
Pascal Morosini, global head of global securities financing, sales and relationship, at Clearstream, said the new agreement cut down the existing lengthy contract negotiation process from a minimum of six months to just a few weeks.
"The problem for the buy-side is that if you are talking to several banks, they will have a different Global Master Repurchase Agreement (GMRA), so what we've done is incorporate the most relevant elements of the bilateral agreements to create a framework which we packaged into the CRC."
"This is simple for a corporate, for example, that would like to sign 12 different banks. They no longer need to negotiate bilateral agreements with each bank, only to find that they don't have any up and running after many months."
The CRC would allow the buy-side to connect to 30 to 40 counterparties within six months - "it's really fast and efficient," Morosini said.
Only counterparties that have signed the CRC will be able to be matched. Clearstream has signed up five banks so far, but more were in the pipeline.
"As soon as we have a dozen, 20 or so banks on board, we'll make the list available to the buy-side," Morosini said. "We've had a great deal of interest."
The new agreement is expected to appeal to customers entering into reverse repos to secure financing and re-use collateral to cover OTC derivatives margin requirements, as a result of regulatory changes.
Under the US' Dodd-Frank and European market infrastructure regulation, swaps must be cleared with a central counterparty, requiring institutional investors to post initial and variation margin for the first time. Coupled with new bank capital requirements under Basel III, the new rules have sparked fears of a high-quality shortage.
Morosini said the CRC was not intended to compete with the GMRA, as it was only focused on triparty repo agreements, and counterparties would still need to sign a contract with Clearstream to carry out margin call arrangements.