Purchase and Repurchase - GMRA Provision

2000 Global Master Repurchase Agreement A Jolly Contrarian owner’s manual™ Resources and navigation 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 Paragraph Purchase and Repurchase in a Nutshell™ Use at your own risk, campers! 2(ii) The Price Differential for any Transaction is Pricing Rate * Purchase Price * day count fraction for the actual number of days from (and including) the Purchase Date to (but excluding) the earlier of the calculation date and the Repurchase Date; 2(jj) The Pricing Rate for any Transaction is the agreed annual percentage used to calculate the Price Differential; 2(kk) “Purchase Date” means the date on which Seller is to sell Purchased Securities to Buyer in a Transaction; 2(ll) “Purchase Price” means the price at which Seller sells the Purchased Securities to Buyer on the Purchase Date; 2(mm) “Purchased Securities” means the Securities sold by Seller to Buyer under a Transaction, and any New Purchased Securities Seller transfers to Buyer under the Substitution paragraph under that Transaction; 2(oo) “Repurchase Date” means the date on which Buyer is to sell Equivalent Securities to Seller under a Transaction; 2(pp) Repurchase Price is the sum of the Purchase Price and the Price Differential, which in turn is calculated as Pricing Rate * Purchase Price * day count fraction. The Pricing Rate is the agreed “repo rate”. view template Full text of Paragraph Purchase and Repurchase 2(ii) “Price Differential”, with respect to any Transaction as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Transaction to the Purchase Price for such Transaction (on a 360 day basis or 365 day basis in accordance with the applicable ISMA convention, unless otherwise agreed between the parties for the Transaction), for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the date of calculation or, if earlier, the Repurchase Date; 2(jj) “Pricing Rate”, with respect to any Transaction, the per annum percentage rate for calculation of the Price Differential agreed to by Buyer and Seller in relation to that Transaction; 2(kk) “Purchase Date”, with respect to any Transaction, the date on which Purchased Securities are to be sold by Seller to Buyer in relation to that Transaction; 2(ll) “Purchase Price”, on the Purchase Date, the price at which Purchased Securities are sold or are to be sold by Seller to Buyer; 2(mm) “Purchased Securities”, with respect to any Transaction, the Securities sold or to be sold by Seller to Buyer under that Transaction, and any New Purchased Securities transferred by Seller to Buyer under paragraph 8 in respect of that Transaction; 2(oo) “Repurchase Date”, with respect to any Transaction, the date on which Buyer is to sell Equivalent Securities to Seller in relation to that Transaction; 2(pp) “Repurchase Price”, with respect to any Transaction and as of any date, the sum of the Purchase Price and the Price Differential as of such date; view template Related agreements and comparisons Related agreements: Click here for the same clause in the 1996 MRA, when we get round to finding out the first thing about it. Comparison: Knowing and, really, caring very little about other kinds of repo agreement, we have nothing presently to compare the Global Master Repurchase Agreement with. 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.

Content and comparisons

See the engine room of the repo agreement: Clause 3, “Initiation; Confirmation; Termination”, which sets out how you start and finish repurchase Transactions, and in which all these Purchase and Repurchase terms live their best lives.

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Summary

Clause 2(ii) Price Differential

Used to calculate the Repurchase Price, so not to be sniffed at, however convoluted the drafting. The Price Differential applies the Pricing Rate to the Purchase Price and applies the day count fraction to generate a time value for your Transaction.

Clause 2(jj) Pricing Rate

This is the repo rate. You multiply the Purchase Price by this rate, apply the relevant day count, and the result — the Price Differential — is the uplift that the Buyer expects over the life of the Transaction. This is made flesh in the Repurchase Price, which is the original Purchase Price plus the Price Differential.

Clause 2(kk) Purchase Date

The day you expect to settle the initial flows (Securities out cash in) on a Transaction, which will usually be a standard settlement cycle after you traded it.

Clause 2(ll) Purchase Price

The initial Purchase Price will be agreed prior to trading so, absent a typo, this should not be a term that you spend a great deal of your time poring over. While it is meant to be, and for good order really should be, at market, seeing as the Seller retains economic ownership of the Purchased Securities at all times and the Buyer is not exposed to their price risk, it really doesn’t awfully matter what the Purchase Price is. The margining mechanic will factor it in. At the time of the SFTR there was much wailing and gnashing of legal eagle beaks at the question of when, and whether, and how quickly, and how accurately, the price of repos and stock loans should be reported. Seeing as they are not risk trades (the way cash equity trades or synthetic equity swaps are), it really doesn’t matter. As the junior eaglets of many inhouse functions cottoned on, the gnashery largely went away.

Clause 2(mm) Purchased Securities

Purchased Securities are the ones that you, you know, repo. Note the Seller can ask to substitute these with other securities under paragraph 8.

Clause 2(oo) Repurchase Date

In the ordinary run of things, a repurchase Transaction has a fixed term and the Repurchase Date will be agreed up front and set out in the Confirmation. The unusual case is the “demand” Transaction, where one or other party, or both, can set a Repurchase Date at any time, though it must always be at least a standard settlement cycle after the demand is issued, for fairly obvious practical reasons.

Clause 2(pp) Repurchase Price

So the price at which you buy the bonds back is the price at which you bought them (the Purchase Price), plus the time value of your trade. Thus, the Seller in a repurchase Transaction retains the price risk of the bonds. If she sells at 100, for a month, with a Pricing Rate of 10% — bear with me: these numbers are not meant to sound realistic but to accommodate the JC’s well-documented struggles with arithmetic — then the Repurchase Price at the end of that month will be 100 + (10 * 30/360) = 100.833.

The Seller must repurchase the bond for 10.833 regardless of the market price at which the bond is trading at the time. Thus the bond functions like collateral for a loan of cash, which must be repaid with interest. Should the bond move in value against the cash repayment obligation, the Margin Maintenance provisions kick in to allow the parties, as they wish, to call for margin.

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See also

• Clause 3: Initiation; Confirmation; Termination

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