Tri-party collateral management is a service in which a third-party agent, usually an international central securities depository (ICSD) or a custodian bank, selects, values, substitutes and margins collateral between two parties under agreed eligibility rules. It is widely used for repo and securities lending and lowers the operational work for both sides.
Repo (Repurchase agreement)A repurchase agreement (repo) is a sale of securities together with an agreement to buy them back at a set price on a later date. Economically it is a secured loan: the seller borrows cash, the buyer lends it and holds the securities as collateral, with the price difference representing the repo rate.
Securities lendingSecurities lending is the temporary transfer of securities from a lender, often a fund or pension scheme, to a borrower that returns equivalent securities later and pays a fee. The borrower gives collateral (cash or securities) above the loan value; lenders keep the economic benefit of income through manufactured payments.
Collateral managementCollateral management is the set of activities to give, take and monitor assets that secure an exposure: agreeing eligibility and haircuts, valuing positions, calling and paying margin, substituting assets and settling movements. Collateral optimisation chooses the cheapest eligible assets to deliver across obligations.
ICSD (International central securities depository)An international central securities depository (ICSD) is a central securities depository that settles trades in international securities, such as Eurobonds, and in domestic securities held through links with local CSDs. ICSDs also offer asset servicing, securities lending and collateral management services to their participants.
HaircutA haircut is the percentage deducted from the market value of an asset given as collateral, to protect the collateral taker against a fall in its value and costs of selling it. Haircuts rise with price volatility, maturity, credit risk and lower liquidity; a 5% haircut means 100 of bonds secures 95 of cash.
ICSD (International central securities depository)An international central securities depository (ICSD) is a central securities depository that settles trades in international securities, such as Eurobonds, and in domestic securities held through links with local CSDs. ICSDs also offer asset servicing, securities lending and collateral management services to their participants.
Repo (Repurchase agreement)A repurchase agreement (repo) is a sale of securities together with an agreement to buy them back at a set price on a later date. Economically it is a secured loan: the seller borrows cash, the buyer lends it and holds the securities as collateral, with the price difference representing the repo rate.
Securities lendingSecurities lending is the temporary transfer of securities from a lender, often a fund or pension scheme, to a borrower that returns equivalent securities later and pays a fee. The borrower gives collateral (cash or securities) above the loan value; lenders keep the economic benefit of income through manufactured payments.