Transaction - GMRA Provision

GMRA Anatomy™ →Go uptown 1(b) Each such transaction (which may be a repurchase transaction (“Repurchase Transaction”) or a buy and sell back transaction (“Buy/Sell Back Transaction”) shall be referred to herein as a “Transaction” and shall be governed by this Agreement, including any supplemental terms or conditions contained in Annex I hereto, unless otherwise agreed in writing. (view template) Resources: 2010 GMRA: Full wikitext · Nutshell wikitext Navigation 2000 GMRA Table of Contents · 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · Schedule · Equities Annex: EA 1 · EA 2 · EA 3 · EA 4 · EA 5 · Buy/Sellback Annex · BSA 1 · BSA 2 · BSA 3 · BSA 4 · BNA 5 Index: Click ᐅ to expand: GMRA Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

There are two types of Transaction under a Global Master Repurchase Agreement: a Repurchase Transaction and a Buy/Sell Back Transaction.

Difference between Repurchase Transaction and a Buy/Sell Back Transaction

The official explanation

According to ICMA’s helpful website 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 to Income Payments on Purchased Securities. In a Nutshell™, under a Repurchase Transaction you “manufacture” income back to the Seller during the life of the Transaction, but do not account separately for Accrued Interest (it will be factored into the market price of the securities for margining purposes); in a Buy/Sell Back transaction the Buyer doesn’t manufacture Income Payments back to the Seller, but does account for Accrued Interest.

The JC’s explanation

Unless you have a taste for paradox (and who, in our shadow-flecked modern world doesn’t?) beside the Income Payment manufacturing versus Accrued Interest there’s no difference between a Repurchase Transaction and a Buy/Sell Back Transaction, and even seasoned industry professionals get fidgety and make their excuses to pop off to the bathroom if you ask them to give one. 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 as a defined term with its own freaking Annex, meticulously negotiated into the master by negotiators the world over.

As to why you would want to calculate your own interest accruals, extrapolating rates, applying day-count fractions and so on, in a repo arrangement where you don’t, ultimately, want to take price risk to the asset anyway, well, search me.