Citigroup placed strict limits on financing routes in its most recent SRT, going beyond even conservative market practices.

To participate in the deal, investors were asked to confirm that they would not use repo or sub-line financing and that they would not use a NAV-line involving a US bank to finance their investment.

Citi’s restrictions on the use of leverage by SRT investors exceeds those of peers, according to 9fin sources.

Other top-tier US banks have been asking investors to disclose information on whether they will finance their SRT investments and discouraged investors from using repo financing provided by other US banks since last year.

These provisions followed increased scrutiny from regulators on the SRT market from a number of global regulatory bodies, including the PRA, Basel Committee, ECB and IMF, especially on the financing provided by other banks to funded protection sellers.

The general market consensus has been that US regulators are apprehensive of US bank SRT bonds being repo financed by other US banks, 9fin understands.

These concerns are driven by the potential circularity of having other banks finance the SRT investments — since risk remains in the banking system — and the mark-to-market risk given the nature of the repo product.

Market participants have largely understood the regulatory scrutiny on leverage as being focused on repo financing.

Banks like Deutsche Bank and Barclays have pulled back from providing repo financing on SRTs discussed by 9fin here and here.

Notably, some banks have been moving away from providing repo on SRT specifically, and exploring other forms of fund level financing such as NAV-line facilities, which can be more expensive but less exposed to mark-to-market volatility.

The Citi deal with these restrictions was an issuance from its Terra programme which is an established SRT programme that has been around since about 2007.

This recent Terra programme transaction closed two months ago and was done on a portfolio of around $8bn corporate loans.

Citi declined to comment.