ICMA clarifies repurchase agreement for digital assets

The International Capital Market Association (ICMA), a not-for-profit global trade association for participants in the cross-border debt capital markets, has published a digital assets annex for its Global Master Repurchase Agreement (GMRA). The Annex was prepared as part of a joint project between ICMA and the International Securities Lending Association (ISLA) to promote consistency in the legal terms used when trading certain digital assets under the GMRA.

The GMRA is a standard legal contract used worldwide for repurchase (repo) agreements, where one party sells securities to another with an agreement to repurchase them later, usually for a slightly higher amount representing interest, helping manage and mitigate risks in financial transactions.

Published on August 19, the Digital Assets Annex to the GMRA was developed by the Digital Assets Legal Working Group run by ISLA and ICMA, with international law firm Clifford Chance appointed as counsel.

According to the ICMA, it “provides a standardised framework and set of terms which can be used to document repo transactions involving digital cash, digital securities (including tokenised traditional securities), or asset-backed digital assets.”

It also clarified that references to ‘Securities‘ in the GMRA included ‘Platform Transferred Securities,’ and references to cash or currency encompass Digital Cash, which could be central bank digital currency (CBDC), tokenized deposits, electronic money tokens or other cryptographically secured representations of a single fiat currency.

Another clarification was ‘Asset-backed Digital Asset,’ which includes a tokenized traditional security or contractual claim on an underlying asset.

“Over the last few years, we have seen a huge growth in digital securities enabled by technological advances, and we hope that the development of this Annex marks an important step for the resumed growth and adoption of these technologies,” said Tina Baker, Head of Legal Services at ISLA.

Traditionally, standard repo agreements have been constrained by settlement delays in securities transactions. One of the key advantages, in theory, of combining distributed ledger technology (DLT)—the technology that underpins blockchain—with repo is the ability to settle instantly. This enables ‘intraday repo,’ where the transaction (sale and repurchase of securities) is completed within the same trading day.

The existing GMRA agreement did not account for settlement at specific times, which is why the Annex includes wording to support this. Additionally, there are adjustments to interest calculations, given they need to account for hours rather than days.

In terms of current intraday repo solutions with a third, JP Morgan (NASDAQ: JPM) offers an intraday repo solution for its clients, and Broadridge’s Distributed Ledger Repo (DLR) platform is another significant intraday solution, processing approximately $1.5 trillion in transactions monthly.

Incorporating the ICMA digital assets annex now allows transactions to include digital cash and/or digital securities.

“We hope the Digital Assets Annex will assist the further growth of the market by presenting a common approach that firms can leverage for transactions referencing the relevant categories of digital asset,” said Michael Brown, partner at Clifford Chance.

Meanwhile, Deena Seoudy, Senior Director and Associate Counsel at ICMA, commented that the annex “represents a significant milestone in the evolution of the GMRA, and we are confident it will support the continued growth and innovation of digital assets within the repo market.”

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