TREPS (Tri-party Repo)

Introduction

In the evolving landscape of Indian money markets, the Triparty Repo (TREPS) system has emerged as a robust and efficient mechanism for short-term borrowing and lending. Introduced to bring transparency, security, and better collateral management, TREPS plays a crucial role in ensuring liquidity in the financial system.

What is TREPS?

TREPS stands for Triparty Repo, a type of repurchase agreement where a third party (clearing corporation) acts as an intermediary between the borrower and lender to manage the collateral. It was introduced in July 2018 by the Clearing Corporation of India Ltd (CCIL) under the guidelines of RBI and SEBI.

In simpler terms, TREPS is an instrument used by market participants to borrow and lend money for short durations, typically overnight, by using Government securities (G-Secs) or other approved securities as collateral. The triparty structure ensures efficiency, safety, and transparency in the repo process.

Historical Background: From CBLO to TREPS

The Transition:

• CBLO (Collateralized Borrowing and Lending Obligation) was the earlier system used for short-term borrowing.
• With the need to align Indian systems with global Basel III norms, and improve operational efficiency and risk management, TREPS was introduced in July 2018.
• By November 2018, CBLO was phased out, and all such transactions migrated to TREPS.

Objective Behind TREPS:

• Improve risk management.
• Increase transparency and automation.
• Broaden participation by non-banking institutions.
• Enable seamless collateral management.

Why TREPS Was Introduced?

Before TREPS, the Collateralized Borrowing and Lending Obligation (CBLO) was the preferred money market instrument for mutual funds and banks. However, CBLO had limitations in terms of flexibility and regulatory alignment with global best practices.

To overcome these limitations and comply with Basel III norms, the Reserve Bank of India (RBI) proposed replacing CBLO with a more robust system — thus, TREPS was introduced.

Key Participants in TREPS

1. Borrowers –
   • Entities that need funds (e.g., banks, NBFCs).
2. Lenders –
   • Entities with surplus funds (e.g., mutual funds, insurance companies).
3. Triparty Agent –
   • CCIL, which facilitates the transaction by managing the collateral and settlement process.

How Does TREPS Work?

Here’s a step-by-step overview of the TREPS mechanism:

1. Initiation:
   • A borrower agrees to sell securities to a lender with an agreement to repurchase them at a future date (usually the next day) at a predetermined price.
2. Role of CCIL:
   • As a triparty agent, CCIL ensures:
     • Proper margining of the collateral.
     • Mark-to-market valuation.
     • Risk management and settlement.
3. Collateral:
   • Only Government Securities (G-Secs), T-Bills, and SDLs approved by CCIL are used as collateral.
4. Maturity:
   • The deal matures on the agreed date (mostly overnight), and the securities are repurchased by the borrower.

Features of TREPS

Feature	Details
Duration	Mostly overnight
Collateral	Government securities (G-Secs), T-Bills, SDLs
Intermediary	CCIL (acts as triparty agent)
Regulated by	RBI & SEBI
Counterparty Exposure	Minimal due to CCIL’s role
Settlement	Guaranteed by CCIL
Market Type	OTC but processed on NDS-OM (Negotiated Dealing System – Order Matching) platform

Benefits of TREPS

1. Efficient Collateral Management:
   • The central clearing and collateral management by CCIL minimizes operational risk.
2. Reduced Counterparty Risk:
   • The triparty structure eliminates the direct exposure between counterparties.
3. Liquidity Management:
   • TREPS helps in smooth short-term liquidity management for financial institutions.
4. Regulatory Compliant:
   • Aligns with Basel III norms and global best practices in risk management.
5. Transparent Pricing:
   • Transactions are recorded and disseminated in a transparent manner, increasing market confidence.
6. Accessibility:
   • It is accessible to a broader range of market participants compared to older systems like CBLO.

TREPS and Mutual Funds

TREPS is particularly popular among liquid and overnight mutual funds as it provides:

• Safety (secured by government securities).
• Liquidity (overnight maturity).
• Better returns compared to parking funds in bank accounts.

According to SEBI’s guidelines, mutual funds must invest only in instruments with the highest safety and liquidity. TREPS fits this mandate perfectly, leading to its widespread adoption by fund managers.

Regulatory Framework for TREPS

TREPS is governed by:

• Reserve Bank of India (RBI) guidelines.
• Securities and Exchange Board of India (SEBI) norms for mutual funds and market participants.
• Clearing Corporation of India Ltd (CCIL) which provides the operational platform and risk management framework.

TREPS in Indian Money Market Today

• TREPS has become a dominant overnight funding instrument in India.
• It replaced CBLO in November 2018.
• Average daily transaction volume in TREPS has crossed ₹1 lakh crore in recent years.
• It is now a key benchmark for short-term interest rates and interbank borrowing.

TREPS vs Traditional Repo

Feature	Traditional Repo	TREPS
Participants	Bilateral (Bank to Bank)	Tri-party (with CCIL)
Collateral Management	Done by parties involved	Handled by CCIL
Risk	Higher Counterparty Risk	Reduced due to centralized management
Transparency	Limited	High due to regulatory oversight
Settlement Risk	Moderate	Minimized with CCIL

Challenges and Future Scope

While TREPS has significantly enhanced short-term funding markets, some challenges remain:

• Limited collateral instruments.
• Limited awareness among smaller financial institutions.
• Dependence on CCIL for operations and settlement.

Future improvements may include:

• Inclusion of more eligible securities.
• Participation from a broader set of institutions.
• Enhanced transparency and reporting standards.

Future Outlook of TREPS

TREPS has laid the foundation for modernizing India’s short-term money markets. Future developments may include:

• Inclusion of corporate bonds or other high-rated instruments as collateral.
• Wider participation from NBFCs and cooperative banks.
• Integration with blockchain or digital ledger technologies for real-time clearing.

Conclusion

TREPS has transformed India’s short-term money market by offering a safer, more efficient, and transparent alternative to traditional repo transactions. It is particularly beneficial for mutual funds, banks, and NBFCs managing daily liquidity. As the Indian financial system continues to modernize, TREPS will remain a vital instrument ensuring systemic liquidity, risk mitigation, and market stability.

Whether you’re a finance student, mutual fund investor, or banking professional, understanding TREPS gives you a solid grasp of how modern financial systems manage short-term funding and liquidity.

FAQs About TREPS

Q1: Is TREPS available for retail investors?
No. TREPS is a wholesale market instrument designed for institutional investors.

Q2: What type of securities can be used in TREPS?
Government of India securities, T-Bills, and SDLs approved by CCIL.

Q3: How is the TREPS rate determined?
Based on supply and demand in the market and closely aligned with RBI’s overnight reverse repo rate.

Q4: Is there any risk involved in TREPS?
Very minimal, since it’s collateralized and guaranteed by CCIL.

Q5: How does TREPS affect the Indian economy?
It promotes financial market stability, improves liquidity, and enhances efficiency in the short-term borrowing market.