Template:Differences between repo and sell buyback: Difference between revisions
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===Difference between {{gmraprov|Repurchase Transaction}} and a {{gmraprov|Buy/Sell Back Transaction}}=== | ===Difference between {{gmraprov|Repurchase Transaction}} and a {{gmraprov|Buy/Sell Back Transaction}}=== | ||
====The official explanation==== | |||
According to [[ICMA]]’s helpful website<ref>[https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/repo-and-collateral-markets/icma-ercc-publications/frequently-asked-questions-on-repo/8-what-is-the-difference-between-a-repurchase-agreement-and-a-sell-buy-back/ You can find ICMA’s FAQ here]</ref> economically, [[repo]]s and [[sell/buy-back]]s both behave like [[secured loan]]s; legally both amount to a sale and later repurchase of securities. A [[repurchase agreement]] is always a written contract; a [[sell/buy-back]] need not be. | According to [[ICMA]]’s helpful website<ref>[https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/repo-and-collateral-markets/icma-ercc-publications/frequently-asked-questions-on-repo/8-what-is-the-difference-between-a-repurchase-agreement-and-a-sell-buy-back/ You can find ICMA’s FAQ here]</ref> economically, [[repo]]s and [[sell/buy-back]]s both behave like [[secured loan]]s; legally both amount to a sale and later repurchase of securities. A [[repurchase agreement]] is always a written contract; a [[sell/buy-back]] need not be. | ||
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**Differences in the [[margin]]ing process | **Differences in the [[margin]]ing process | ||
**What happens when {{gmraprov|income}} is paid on {{gmraprov|collateral}}. | **What happens when {{gmraprov|income}} is paid on {{gmraprov|collateral}}. | ||
====The Jolly Contrarian’s explanation==== | |||
There’s no difference between them, and even seasoned industry professionals get fidgety and make their excuses to pop off to the bathroom if you ask them. To the sentiment that [[buy/sell-back]]s are undocumented, the lie is somewhat given to that by the fact that the {{gmra}} expressly incoporates the Buy/Sell Back Transaction and its own freaking Annex, into the meticulously negotiated master documentation. Unless you have a taste for paradox (and who, in our shadow-flecked modern world doesn’t) it doesn’t hold water. | |||
Revision as of 14:00, 3 December 2018
Difference between Repurchase Transaction and a Buy/Sell Back Transaction
The official explanation
According to ICMA’s helpful website[1] economically, repos and sell/buy-backs both behave like secured loans; legally both amount to a sale and later repurchase of securities. A repurchase agreement is always a written contract; a sell/buy-back need not be.
- Undocumented sell/buy-backs: The sale and repurchase legs of an undocumented sell/buy-back are considered as separate contracts. Since there is no contract between times:
- The parties cannot call margin on each other for market movements between the transactions
- Netting is less certain.
- Documented sell/buy-backs: There are operational differences between repos and documented sell backs:
- Differences in the margining process
- What happens when income is paid on collateral.
The Jolly Contrarian’s explanation
There’s no difference between them, and even seasoned industry professionals get fidgety and make their excuses to pop off to the bathroom if you ask them. To the sentiment that buy/sell-backs are undocumented, the lie is somewhat given to that by the fact that the Global Master Repurchase Agreement expressly incoporates the Buy/Sell Back Transaction and its own freaking Annex, into the meticulously negotiated master documentation. Unless you have a taste for paradox (and who, in our shadow-flecked modern world doesn’t) it doesn’t hold water.