Citi'​s Steve Kang writes on "DTCC'​s new CCP repo service," in his latest "Short-​End Notes," saying, "The Depository Trust and Clearing Corp (​DTCC), an entity that has been centrally clearing interdealer repo transactions for GC collaterals, proposed Centrally Cleared Institutional Triparty (​CCIT) – a new centrally cleared tri-​party repo market for certain subsets of institutional cash lenders. This is currently under review by regulators and scheduled for implementation in Q2. Centralized repo clearing would lower B/​S costs for dealers for netting benefits and lower risk weights on risk-​weighted capital ratios. Therefore, depending on the scope of the change, it has potential to bring repo rates lower and swap spreads wider. At the current form, Registered Investment Companies (​RICs, which includes 2a7 funds/​hedge funds/​REITs) are not eligible to participate in the program. Instead, non-​RIC entities such as Separately Managed Accounts and corporate investors are likely to be the primary participants. Given that 2a7 funds – who provide around half of all Tri-​party repo ex Fed/​interdealer cash (​roughly $​1.​5tn) – are not included, the impact seems limited for now. There certainly is potential for a wider eligibility at some point. We will be following up on this in our publications going forward."

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