SEC Issues Guidance Update on Tri-Party Repo Defaults
The staff of the SEC’s Division of Investment Management has issued a Guidance Update advising funds how to prepare for defaults in the tri-party repo market. The Guidance Update suggests that funds review default procedures to prepare for required notifications, understand the operational impacts arising from the taking of collateral, and preparing for SEC notification and other regulatory issues. The Guidance Alert refers to a checklist prepared by the Investment Company Institute. The staff notes that money market funds would be most impacted. The staff explains that the Guidance Update was prompted by concerns raised by the Financial Stability Oversight Counsel.
OUR TAKE: We don’t think that a tri-party repo default is likely event, but the staff has provided some helpful guidance if it occurs.