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2000 Global Master Repurchase Agreement
A Jolly Contrarian owner’s manual™
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Paragraph Buy/Sellback Annex in a Nutshell™
Use at your own risk, campers!
BSA 1 Scope
(a) The parties may enter Buy/Sell Back Transactions under this Agreement.
(b) Where they do, Agreement will be amended by paragraphs 3 to 5 of this Annex.
BSA 2 Interpretation
(a) Definitions: In this Annex:
- (i) “Accrued Interest” means for any Purchased Securities under a Buy/Sell Back Transaction, unpaid Income accruing from the last Income Payment Date for the Purchased Securities to the calculation date. Unpaid Income will accrue daily during each interest period;
- (ii) “Sell Back Differential” means the aggregate amount obtained by daily applying Pricing Rate on a Buy/Sell Back Transaction using the appropriate ISMA day count convention, to the sum of (a) the Purchase Price and (b) Accrued Interest paid on the Purchase Date for such Transaction for the actual number of days between the Purchase Date and the calculation date;
- (iii) “Sell Back Price” means, for any Buy/Sell Back Transaction:
- (x) for the originally agreed Repurchase Date under paragraph 3(b)(iii), the agreed price agreed for that Buy/Sell Back Transaction, and
- (y) in any other case the product of the formula (P + Al +D) - (IR + C), where:
- P = Purchase Price.
- Al = Accrued Interest at the Purchase Date, paid under paragraph BSA 3(f).
- D = Sell Back Differential.
- IR = Any income payable under the Purchased Securities on any date between the Purchase Date and the Repurchase Date.
- C = the aggregate amount obtained by applying the Pricing Rate to the Income daily from the payment date to the of calculation date
(b) Construction: References to Repurchase Price in the Agreement will include any relevant Sell Back Price.
(c) Events of Default: In Paragraph 10(c)(i) (Events of Default), “Repurchase Prices” includes Sell Back Prices”.
(d) Hierarchy: Where this Annex conflicts with any other term of the Agreement, the Annex will prevail.
BSA 3 Initiation; Confirmation; Termination
(a) Designation: The parties will identify whether a Transaction is a Repurchase Transaction or a Buy/Sell Back Transaction at the time of trading it, and will specify that in the Confirmation.
(b) Form of Confirmation: The Confirmation for a Buy/Sell Back Transaction may be a single document covering both transactions of the Buy/Sell Back Transaction, or separate Confirmations for each transaction. The Confirmations may be in the form of Annex II (except item 10, because the Transaction will not be terminable on demand).
(c) Sell Back Price: In a Buy/Sell Back Transaction the parties must also agree and record in a Confirmation the Sell Back Price and the Pricing Rate that will apply on the Repurchase Date.
(d) No termination on demand: Buy/Sell Back Transactions may not be terminated on demand.
(e) Exclusion of Accrued Interest: The Purchase Price and the Sell Back Price in a Buy/Sell Back Transaction will both be quoted exclusive of Accrued Interest.
(f) Initial settlement: Under paragraph 3(c) of the Agreement, for a Buy/Sell Back Transaction, the Seller will transfer Purchased Securities to Buyer against the payment of the Purchase Price plus Accrued Interest.
(g) Termination settlement: Paragraph 3(f) of the Agreement will not apply. Instead, a Buy/Sell Back Transaction will terminate on the Repurchase Date by transfer to Seller of Equivalent Securities against the payment by Seller of:
- (i) where the Repurchase Date is the originally scheduled date, the Sell Back Price described in paragraph 2(iii)(x) of this Annex plus Accrued Interest to the Repurchase Date; and
- (ii) in any other case, the Sell Back Price referred to in paragraph 2(iii)(y) of this Annex.
BSA 4. Margin maintenance: “repricing”
If the parties reprice a Buy/Sell Back Transaction under paragraph 4(i) they will agree a Purchase Price, Sell Back Price and Pricing Rate for the Repriced Transaction.
BSA 5. No Income Payments
Paragraph 5 ( Income Payments) does not apply.
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Full text of Paragraph Buy/Sellback Annex
Buy/Sellback Annex
BSA 1 Scope
(a) The parties have agreed that the Transactions to which this Agreement applies may include Buy/Sell Back Transactions.[1]
(b) In relation to Buy/Sell Back Transactions, the Agreement shall be construed as if it had been amended and supplemented as set out in paragraphs 3 to 5 of this Annex.
BSA 2 Interpretation
(a) In this Annex -
- (i) “Accrued Interest”, with respect to any Purchased Securities subject to a Buy/Sell Back Transaction, unpaid Income that has accrued during the period from (and including) the issue date or the last Income Payment Date (whichever is the later) in respect of such Purchased Securities to (but excluding) the date of calculation. For these purposes unpaid Income shall be deemed to accrue on a daily basis from (and including) the issue date or the last Income Payment Date (as the case may be) to (but excluding) the next Income Payment Date or the maturity date (whichever is the earlier);
- (ii) “Sell Back Differential”, with respect to any Buy/Sell Back Transaction as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Buy/Sell Back 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) to the sum of (a) the Purchase Price and (b) Accrued Interest paid on the Purchase Date for such Transaction for the actual number of days during the period commencing on (and including) the Purchase Date for such Buy/Sell Back Transaction and ending on (but excluding) the date of calculation;
- (iii) “Sell Back Price”, with respect to any Buy/Sell Back Transaction, means -
- (x) in relation to the date originally specified by the parties as the Repurchase Date pursuant to paragraph 3(b)(iii) of the Agreement, the price agreed by the Parties in relation to that Buy/Sell Back Transaction, and
- (y) in any other case (including for the purposes of the application of paragraph 4 (margin maintenance) or paragraph 10 (Events of Default) of the Agreement), the product of the formula
- (P + Al +D) - (IR + C), where -
- P = the Purchase Price
- Al = the amount, equal to Accrued Interest at the Purchase Date, paid under paragraph 3(f) of this Annex
- D = the Sell Back Differential
- IR = the amount of any income in respect of the Purchased Securities payable by the issuer on or, in the case of registered Securities, by reference to, any date falling between the Purchase Date and the Repurchase Date
- C = the aggregate amount obtained by daily application of the Pricing Rate for such Buy/Sell Back Transaction to any such Income from (and including) the date of payment by the issuer to (but excluding) the date of calculation
(b) References to Repurchase Price throughout the Agreement shall be construed as references to “Repurchase Price or Sell Back Price, as the case may be”.
(c) In Paragraph 10(c)(i) of the Agreement (relating to Events of Default), the reference to the “Repurchase Prices” shall be construed as a reference to “Repurchase Prices and Sell Back Prices”.
(d) In the event of any conflict between the terms of this Annex Ill and any other term of the Agreement, the terms in this Annex shall prevail.
BSA 3 Initiation; Confirmation; Termination
(a) Each Transaction shall be identified at the time it is entered into and in the Confirmation relating to it as either a Repurchase Transaction or a Buy/Sell Back Transaction.
(b) In the case of a Buy/Sell Back Transaction the Confirmation delivered in accordance with paragraph 3 of the Agreement may consist of a single document in respect of both of the transactions which together form the Buy/Sell Back Transaction or separate Confirmations may be delivered in respect of each such transaction. Such Confirmations may be in the form of Annex Il to the Agreement except that, subject to sub-paragraph (c) below, such Confirmations shall not include the item specified in paragraph 10 of Annex ll.
(c) When entering into a Buy/Sell Back Transaction the parties shall also agree the Sell Back Price and the Pricing Rate to apply in relation to that Transaction on the scheduled Repurchase Date. The parties shall record the Pricing Rate in at least one Confirmation applicable to that Buy/Sell Back Transaction.
(d) Buy/Sell Back Transactions shall not be terminable on demand.
(e) In the case of a Buy/Sell Back Transaction, the Purchase Price shall be quoted exclusive of Accrued Interest to the Purchase Date on the Purchased Securities and the Sell Back Price shall be quoted exclusive of Accrued Interest.
(f) For the purposes of paragraph 3(c) of the Agreement, in the case of a Buy/Sell Back Transaction, the Purchased Securities shall be transferred to Buyer or its agent against the payment of the Purchase Price plus an amount equal to Accrued Interest to the Purchase Price on such Purchased Securities.
(g) In the case of a Buy/Sell Back Transaction, paragraph 3(f) of the Agreement shall not apply. Termination of such a Transaction will be effected on the Repurchase Date by transfer to Seller or its agent of Equivalent Securities against the payment by Seller of (i) in a case where the Repurchase Date is the date originally scheduled by the parties pursuant to paragraph 3(b)(iii) of the Agreement, the Sell Back Price referred to in paragraph 2(iii)(x) of this Annex plus an amount equal to Accrued Interest to the Repurchase Date; and (ii) in any other case, the Sell Back Price referred to in paragraph 2(iii)(y) of this Annex.
BSA 4. Margin maintenance: “repricing”
If the parties agree that a Buy/Sell Back Transaction is to be repriced in accordance with paragraph 4(i) of the Agreement, they shall at the time of such repricing agree the Purchase Price, the Sell Back Price and the Pricing Rate for the Repriced Transaction.
BSA 5. Income Payments
Paragraph 5 of the Agreement (relating to Income Payments) shall not apply to Buy/Sell Back Transactions.
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Related agreements and comparisons
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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.
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Content and comparisons
Buy/Sellback Annex
BSA 1 Scope (Buy/Sellback Annex)
BSA 2 Interpretation (Buy/Sellback Annex)
BSA 3 Initiation; Confirmation; Termination (Buy/Sellback Annex)
BSA 4 Margin maintenance: “repricing” (Buy/Sellback Annex)
BSA 5 Income Payments (Buy/Sellback Annex)
Summary
The official explanation
According to ICMA’s helpful website[2] 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:
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.
See also
Template:M sa GMRA Buy/Sellback Annex
References