Triparty agent: Difference between revisions
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| (6 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
[[File:Triparty Diagram.png| | {{a|g| | ||
[[File:Triparty Diagram.png|center|450px|thumb|A triparty agent structure yesterday]] | |||
}}“Tri-party.” It sounds such ''fun'', doesn’t it? | |||
One who manages a [[tri-party collateral arrangement]]. A useful fellow if you want to grant [[Security interest|security]] over a revolving pool of collateral securities and retain a right of substitution. Some useful discussion there at [[Financial Collateral Regulations]]. | One who manages a [[tri-party collateral arrangement]]. A useful fellow if you want to grant [[Security interest|security]] over a revolving pool of collateral securities and retain a right of substitution. Some useful discussion there at [[Financial Collateral Regulations]]. | ||
Often [[triparty agent]]s are behemoth banks like JPMorgan, Bank of New York Mellon, or clearing systems like Euroclear. | Often [[triparty agent]]s are behemoth banks like JPMorgan, Bank of New York Mellon, or clearing systems like Euroclear. | ||
Negotiating in a triparty arrangement can be quite the three-legged race. It can be like dealing with an architect and a builder who blame each other every time the ceiling collapses. | |||
===How it works=== | ===How it works=== | ||
See handy diagram over yonder ==>. | See handy diagram over yonder ==>. | ||
The triparty agent acts as a [[custodian]]. It opens separate accounts in the name of a {{gmslaprov|borrower}} (usually a [[broker]] looking to “upgrade” securities in its equities and [[prime brokerage]] businesses, optimising its funding position for [[margin loan]]s it has made) and {{gmslaprov|lender}} — typically a large wealth manager whose clients have lots of government bonds and other high-quality securities they want to earn some extra yield), and transfers | The triparty agent acts as a [[custodian]]. It opens separate accounts in the name of a {{gmslaprov|borrower}} (usually a [[broker]] looking to “upgrade” securities in its equities and [[prime brokerage]] businesses, optimising its funding position for [[margin loan]]s it has made) and {{gmslaprov|lender}} — typically a large wealth manager whose clients have lots of government bonds and other high-quality securities they want to earn some extra yield), and transfers [[collateral]] between them at their joint instruction, in satisfaction of [[margin]] obligations under the stock loan between the lender and borrower, which will be documented under a separate [[master agreement]]. A {{gmsla}} or something similar. So very popular with [[agent lender]]s and [[agent lending]] participants as a handy way of managing collateral received from [[broker]]s who are borrowing their securities to of their [[prime brokerage]] desk, as this handy diagram purports to illustrate. | ||
The [[triparty agent]] acts as | The [[triparty agent]] acts as [[custodian]] and has legal title to securities which it holds as trustee for the [[broker]], so at first [[broker]] is the beneficial owner. When the securities are transferred to a lender as collateral, the triparty custodian effects this in its own books and records by debiting [[broker]]’s account – whereupon [[broker]] ceases to have any legal or [[beneficial interest]] in the securities – and credits them to the {{gmslaprov|Lender}}, whereupon the {{gmslaprov|Lender}} holds the beneficial interest. | ||
At all times while the securities are in the triparty system, the [[triparty custodian]] owns legal title. It moves securities by book entry in its own records – there is no physical movement of actual securities once they’re in the triparty system. The [[broker]] can credit and debit securities from its long box account more or less at will (as long as it keeps a sufficient collateral balance in there) in order to meet its own requirements for hedging (and its PB clients’ interests in rehypothecated custody assets) | At all times while the securities are in the triparty system, the [[triparty custodian]] owns legal title. It moves securities by book entry in its own records – there is no physical movement of actual securities once they’re in the triparty system. The [[broker]] can credit and debit securities from its long box account more or less at will (as long as it keeps a sufficient collateral balance in there) in order to meet its own requirements for hedging (and its PB clients’ interests in rehypothecated custody assets) | ||
===[[Pledge GMSLA]]=== | ===[[Pledge GMSLA]]=== | ||
Note - after the [[Basel III]] reforms, it has become expensive for [[broker]]s to post (haircutted) | Note - after the [[Basel III]] reforms, it has become expensive for [[broker]]s to post (haircutted) [[collateral]] by [[title transfer]] because they pick up [[LRD]] exposure to the Lender for the return of excess [[collateral]] - becuase they are an unsecured creditor, see? Many are moving to a [[pledge GMSLA]] for agent lending arrangements (ithe pledge GMSLA only makes commercial sense for a {{gmslaprov|Lender}} (like an [[agent lender]] who has no need to [[reuse]] the collateral) | ||
{{ | {{sa}} | ||
*[[Account control agreement]] | |||
*[[Agent lending]] | *[[Agent lending]] | ||
*[[Pledge GMSLA]] | *[[Pledge GMSLA]] | ||
Latest revision as of 13:30, 14 August 2024
|
“Tri-party.” It sounds such fun, doesn’t it?
One who manages a tri-party collateral arrangement. A useful fellow if you want to grant security over a revolving pool of collateral securities and retain a right of substitution. Some useful discussion there at Financial Collateral Regulations.
Often triparty agents are behemoth banks like JPMorgan, Bank of New York Mellon, or clearing systems like Euroclear.
Negotiating in a triparty arrangement can be quite the three-legged race. It can be like dealing with an architect and a builder who blame each other every time the ceiling collapses.
How it works
See handy diagram over yonder ==>. The triparty agent acts as a custodian. It opens separate accounts in the name of a borrower (usually a broker looking to “upgrade” securities in its equities and prime brokerage businesses, optimising its funding position for margin loans it has made) and lender — typically a large wealth manager whose clients have lots of government bonds and other high-quality securities they want to earn some extra yield), and transfers collateral between them at their joint instruction, in satisfaction of margin obligations under the stock loan between the lender and borrower, which will be documented under a separate master agreement. A 2010 GMSLA or something similar. So very popular with agent lenders and agent lending participants as a handy way of managing collateral received from brokers who are borrowing their securities to of their prime brokerage desk, as this handy diagram purports to illustrate.
The triparty agent acts as custodian and has legal title to securities which it holds as trustee for the broker, so at first broker is the beneficial owner. When the securities are transferred to a lender as collateral, the triparty custodian effects this in its own books and records by debiting broker’s account – whereupon broker ceases to have any legal or beneficial interest in the securities – and credits them to the Lender, whereupon the Lender holds the beneficial interest.
At all times while the securities are in the triparty system, the triparty custodian owns legal title. It moves securities by book entry in its own records – there is no physical movement of actual securities once they’re in the triparty system. The broker can credit and debit securities from its long box account more or less at will (as long as it keeps a sufficient collateral balance in there) in order to meet its own requirements for hedging (and its PB clients’ interests in rehypothecated custody assets)
Pledge GMSLA
Note - after the Basel III reforms, it has become expensive for brokers to post (haircutted) collateral by title transfer because they pick up LRD exposure to the Lender for the return of excess collateral - becuase they are an unsecured creditor, see? Many are moving to a pledge GMSLA for agent lending arrangements (ithe pledge GMSLA only makes commercial sense for a Lender (like an agent lender who has no need to reuse the collateral)