Managing Repo And Funding

Managing Repo And Funding

When To Use

• Evaluating existing repo book positions for collateral adequacy, tenor mismatch, or counterparty concentration
• Assessing haircuts on specific collateral classes (Treasuries, agencies, corporates, ABS/MBS, equities)
• Optimizing overnight vs. term funding costs across bilateral and tri-party channels
• Preparing margin call or substitution analysis when collateral values shift
• Modeling funding ladder scenarios for liquidity stress testing
• Reviewing counterparty credit exposure within the repo portfolio

Inputs To Gather

• Position data: Outstanding repo and reverse-repo balances by counterparty, tenor bucket, and collateral type
• Collateral schedule: CUSIP/ISIN-level holdings pledged or received, with current market values and accrued interest
• Haircut tables: Applicable haircut percentages by collateral type, credit rating, and remaining maturity — source from FICC/GSD schedules, prime broker margin grids, or internal risk policy [VERIFY: confirm haircut source matches governing agreement — GMRA, MRA, or tri-party schedule]
• Funding rate benchmarks: SOFR, Fed Funds effective, tri-party GC rates, and any term SOFR fixings relevant to the book
• Counterparty limits: Approved credit lines, concentration caps, and netting eligibility per counterparty
• Maturity ladder: Roll dates, open vs. term positions, and any evergreen structures with termination notice periods

Workflow

1. Map the repo book

   • Aggregate positions by collateral type (govts, agencies, IG corporates, HY/unrated, structured)
   • Segment by tenor: overnight/open, 1-week, 1-month, 3-month, term >3 months
   • Tag each trade as bilateral, tri-party (BNY, JPM, etc.), or GCF/FICC-cleared [VERIFY: clearing status and CCP membership]

2. Assess collateral valuation and haircuts

   • Mark collateral to current market prices; include accrued interest for coupon-bearing securities
   • Compare applied haircuts against governing schedule — flag any collateral trading below investment grade or approaching downgrade watch
   • Calculate net exposure per counterparty: (collateral market value × (1 − haircut)) − repo principal
   • Identify margin deficit or surplus positions; flag any exceeding the minimum transfer amount (MTA)

3. Analyze funding costs

   • Compute weighted-average repo rate across the book, broken out by collateral type and tenor
   • Benchmark against SOFR (overnight), term SOFR (for term trades), and GC composite rates
   • Quantify spread to benchmark: positive spread = funding at a premium; negative = favorable funding
   • Identify "specials" trading meaningfully below GC — note the specific issues and the basis-point spread

4. Evaluate concentration and rollover risk

   • Check single-counterparty exposure against credit limits and regulatory large-exposure thresholds [VERIFY: applicable regulatory framework — Basel III, SEC Rule 15c3-1, or internal policy]
   • Assess maturity concentration: what percentage of funding rolls within 1 day, 1 week, 30 days
   • Model a stress scenario where the largest counterparty or collateral class is unavailable — quantify the funding gap

5. Optimize and recommend

   • Identify substitution opportunities: swap higher-haircut collateral for lower-haircut eligible securities to free up balance sheet
   • Recommend tenor extension for positions rolling overnight if term funding is available at acceptable spread
   • Flag opportunities to move bilateral trades to cleared (FICC-sponsored) for capital relief
   • Propose counterparty diversification where concentration limits are approaching thresholds

Output

The final management report should include:

• Position summary table: Columns for counterparty, direction (repo/reverse), collateral type, principal, market value, haircut %, net exposure, maturity date, and rate
• Funding cost dashboard: Weighted-average rate by collateral bucket vs. benchmark, with trend vs. prior period
• Haircut adequacy matrix: Current haircuts vs. policy/schedule requirements, with exceptions highlighted
• Concentration heat map: Counterparty and collateral-type exposure as percentage of total book and of approved limits
• Risk flags: Margin calls pending, collateral on downgrade watch, tenor mismatches exceeding policy, or positions approaching regulatory thresholds
• Action items: Specific substitution, extension, or diversification trades recommended with estimated cost/benefit

Quality Checks

• Verify all collateral market values are as-of the same pricing snapshot (T or T-1 close) — mixed dates distort haircut adequacy
• Confirm haircut percentages match the operative agreement for each counterparty (GMRA Annex I, MRA Schedule, or tri-party eligibility profile)
• Cross-check repo rates against published SOFR/GC benchmarks for reasonableness — rates deviating >25 bps from GC without a specials explanation warrant review
• Ensure netting is applied only where a valid netting opinion or ISDA/GMRA close-out netting clause exists [VERIFY: netting enforceability per jurisdiction]
• Validate that concentration metrics use correct denominator (total repo book, not total firm assets) unless policy specifies otherwise
• Confirm all open/evergreen positions reflect correct termination notice periods in the maturity ladder