The New York Fed has revealed that the work required to align settlement of interbank general collateral finance (GCF) repo trades with the new tri-party settlement process will stretch beyond 2015, in a statement on its website.

Earlier this year, BNY Mellon completed the final piece of its settlement process for tri-party repo. This reduced the secured credit extended in the tri-party repo market by $1.44trn, or 97%.

In a statement in February 2014 the Fed had said that the work to integrate GCF repo settlement into the new settlement process for tri-party repo would be completed sometime in 2015. 

The Fed said that the delay was because of "the complexity of the reengineering challenge involved as well as the contention of this effort with other near-term changes that are required for other purposes". 

The regulator also said it was considering options to speed up the completion of this last step.

The work is part of the Tri-party Repo Infrastructure Reform Task Force, which released its seven-point roadmap three years ago. 

The reforms aim to greatly reduce the market’s reliance on discretionary extensions of intraday credit by the clearing banks and foster improvements in market participants’ liquidity and credit risk management practices.

The settlement process for the majority of GCF repo trades that occur between dealers at the same clearing bank is largely aligned with the reform goals as minimal intraday credit is used, and settlement occurs between 3:30pm and 5:15pm.

However, the subset of GCF repo transactions that occur between dealers at different clearing banks are still unwound at 8:30am, and still require uncapped, discretionary extensions of intraday credit by the clearing banks to settle. This, says the Fed, is a potential source of market instability in periods of stress. 

In a full-blown stress event, GCF repo usage, and the associated intraday credit needed to settle that GCF repo activity, could balloon suddenly and significantly, to levels that a clearing bank is unwilling or unable to support through the provision of the necessary intraday credit.