Tri-Party Collateral Agreements

Financial institutions are reconsidering their security management practices and breaking existing silos. Although the concept of a triparty service was originally created for interdeal activity, it will be more widely used in all derivatives activities by financial institutions. To make it a success, market participants should have a multi-team, global approach. You need to make sure that the value chain, front-office and middle-office and back-office processes are fully suited to a triparty service. See practical diagram on the >. The Triparty agent is an administrator. It opens separate accounts in the name of a borrower (usually a broker who wants to « value » securities in his stock and bonus brokerage operations, optimizes its financing position for marginal loans it has made) and lenders – usually a large asset manager whose clients have many government bonds and other high-quality securities they want to earn through additional income) and transfers guarantees to each other on their common instructions. , in order to meet the equity loan margin commitments between the lender and the borrower, which are documented under a separate framework agreement. A 2010 GMSLA or something similar. So popular with agent lenders and agent borrowers as a convenient way to get guarantees from brokers who lend their securities to their Prime Brokerage Desk, as this handy chart claims to illustrate.

As long as the securities are in the triparty system, the tripartite administrator holds the title at all times. She moves the securities by entering a book into her own records – there is no physical movement of the actual titles once they are in the triparty system. The broker may display securities in his long-box account more or less as he sees fit (as long as he has a sufficient guarantee balance) to meet his own hedging requirements (and the shares of his PB clients in rehypothetic deposits). , the initial margin for over-the-counter and securities financing transactions. Agent De Triparty is a custodian and enjoys legal protection over the securities he holds as an agent for the broker, so that the broker is first and foremost the actual beneficiary. When the securities are transferred as collateral to a lender, the trustee does so in his own books and records by debiting the broker`s account – after which the broker no longer has any legal or economic shares in the securities – and crediting them to the lender, after which the lender holds the economic shares. A tripartite agreement is a transaction between three separate parties. In the mortgage sector, during the construction phase of a new residential or residential complex, there is often a tripartite or tripartite agreement to guarantee bridge credits for the construction itself.

 

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