To promote the stable and healthy development of the interbank bond market, strengthen risk management of the currency market, and help win the tough battle of preventing and mitigating major risks, People’s Bank of China (PBoC) recently announced the official launch of tri-party repo in the interbank bond market.

Tri-party repo is a common repo service model in the international developed markets. Trading parties just need to discuss about the amount, interest rate and term of the funds, while a third party is responsible for the management of collateral selection and valuation under the agreement.

In the recent years, the participants of repo transactions in China’s interbank bond market are increasingly diversified. They are more conscious about risk and cost efficiency, and have urgent demand for refined management of repo collaterals. Meanwhile, risk prevention and control in the repo market also need strengthening. The launch of tri-party repo in the interbank bond market facilitates market players to conduct repo transactions, reduces risks like settlement failure, and ensures the effective coverage of risk exposure in the duration of repo transactions, thus enhancing the capacity of risk prevention and control. At present, bond registration, custody and settlement agencies in the interbank market are eligible to provide tri-party repo service for third parties, and certain qualified large banks are expected to join in the future.