Template:What is a repo
What is a repo?
In a Nutshell™: A repo, or repurchase agreement, and its close relation the sell/buy-back[1], is a way of borrowing government bonds.
Documentation: Repos are most commonly documented under a 2000 Global Master Repurchase Agreement, the industry standard English law agreement, published by TBMA and ICMA
Structure: Repos are structured as a spot DVP sale at market, and a later DVP repurchase, also at market, of the same securities (hence, “repurchase”). In any case there is always a cash leg — by which the “Buyer” pays for the govvies — and a securities leg — by which the Seller delivers them. Contrast that with a stock loan where both the Loan and the Collateral leg are physical settlements of securities.
Term: Repo trades are usually very short term, typically overnight.
Reverse repo: a reverse repo is just a repo from the point of view of the buyer. The Buyer buys and agrees to sell back later; the Seller sells and agrees to buy back later.
- ↑ Or buy/sell-back - in any case known in the Global Master Repurchase Agreement as a Buy/Sell Back Transaction.