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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