Financial Services Commission Expands Scope of Cash Equivalents Recognition in RP Transactions

[Asia Economy Reporter Park Jihwan] In the short-term funding market, the repurchase agreement (RP) market, sellers will be required to hold up to 20% of their cash-equivalent assets. The scope of cash-equivalent assets includes not only cash and time deposits but also deposits at securities finance companies and financial institution-issued commercial papers.

The Financial Services Commission (FSC) announced on the 4th that it will implement the "Follow-up Measures to Improve the Efficiency and Safety of the RP Market," which includes these provisions.

According to the regulatory amendment, RP sellers such as securities firms, banks, and funds must hold cash-equivalent assets amounting to up to 20% of their borrowing scale starting from the third quarter of next year. However, to allow market participants an adjustment period, the holding ratio will be applied up to a maximum of 10% until the first quarter of next year.

An FSC official explained, "Reflecting the higher refinancing risk for shorter maturities and to encourage trading with longer maturities than overnight, the cash-equivalent asset holding ratio will be applied differentially according to the RP transaction maturity."

The specific scope of cash-equivalent assets has also been defined. In addition to cash, time deposits, foreign currency deposits, and certificates of deposit (CDs), deposits at securities finance companies that have no disposal restrictions and can be liquidated on the same day, demand withdrawal money trusts and discretionary investment products (MMT, MMW), and commercial papers issued by banks, securities firms, and securities finance companies (demand instruments) are recognized as cash-equivalent assets. However, for demand withdrawal MMT and MMW, since regulations require holding at least 30% of highly liquid assets, only 30% of these are counted.

Furthermore, the RP scale used as the basis for cash-equivalent asset holding has been set. The holding ratio will be calculated based on the highest amount among the monthly average RP sales balances over the previous three months.

The FSC plans to announce the regulatory changes by March 11, proceed with the FSC resolution in April, and implement the measures starting in July.

This content was produced with the assistance of AI translation services.