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The engine room of the Global Master Repurchase Agreement. If you are arriving here from the land of ISDA Master Agreement you may be surprised at how blasé this all seems. But repo is the basic plumbing of the financial system, and there is little standing on ceremony — nor are the tenors or the exposures anything to get particularly wild about: while repo is not usually callable at will (as a stock loan typically is) the terms tend to be short — usually inside three months, and often as short as overnight.

The key terms are really straight forward: start date, finish date, who is “buying” and who is “selling”, and at what price. Note that while the Purchase Price is a matter of some conjecture and negotiation; the Repurchase Price is not: it is basically the Purchase Price plus a fee-loading that you determine by applying the Pricing Rate. Thus — this is axiomatic to the concept of a repo — the seller retains the price risk on the Purchased Securities throughout the trade. The buyer is really only financing the seller’s inventory. Economically, this is little different from a secured loan collateralised by title transfer of bonds, but — for reasons we don’t in all honesty understand, since the financial treatment ought to be the same, at least as long as the Repurchase Price is fixed to the Purchase Price and the Buyer therefore doesn’t really take risk to the Purchased Securities, and nor would the Seller get them off its balance sheet.