By Daniel Stanton
Bank of New York to service tri-party repo transaction.
Riyad Bank has appointed the Bank of New York to conduct one of the first ever tri-party repo transactions in the Middle East, in a move that could spur other institutions in the region to become more active in managing their collateral.
The Bank of New York will act as an intermediary between a buyer and seller, or lender and borrower of securities to ensure proper collateralisation throughout the term of the transaction. The Bank verifies collateral eligibility, marks to market securities pledged as collateral, processes income and provides daily reporting to both parties.
Abdulaziz Al-Malki, executive vice president of treasury and investment for Riyad Bank, said: "This arrangement will allow Riyad Bank to take advantage of its international fixed income portfolio by tapping into a new funding source at a competitive cost. We selected The Bank of New York because it is the world's leading tri-party repo provider with the expertise and capacity to meet our requirements both now and in the future."
Bank of New York currently services more than $1.3 trillion in tri-party balances worldwide, but repo transactions have not been widely used in the GCC.
Hani Kablawi, managing director, client management, Bank of New York, said: "What's unique about that is that this is something that's taken off in Europe and Asia, but as far as we can tell it's the first time that a book of that size and that make-up has been used to self-fund in the Middle East via that product. It is basically allowing Riyad Bank to outsource, in a way, the function of maintaining the records, maintaining the margins, and making sure that the proper coverages and percentages are always available."
He added: "We see a trend in the industry where a third party, the custodian of the securities, sits in the middle and manages the process and the flow of bringing securities into the repo account, on instructions repo-ing those securities out, taking cash delivery, making sure that the cash is always there, providing reporting, and at all points in time providing that independent verification, as well as the operational outsourcing that might be required in an operationally cumbersome process like that."