Transaction - GMRA Provision
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:
The Jolly Contrarian’s explanation
Unless you have a taste for paradox (and who, in our shadow-flecked modern world doesn’t?) there’s no difference between a repo and a sell/buy-back, 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.