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Repo Agreement Central Bank

In some cases, the underlying security may lose its market value for the duration of the pension agreement. The buyer can ask the seller to finance a margin account on which the price difference is identified. If the purpose of the repoe is to borrow money, it is not technically a loan: the ownership of the securities in question actually comes and goes between the parties involved. Nevertheless, these are very short-term transactions with a guarantee of redemption. Term refers to a repository with an indicated end date: Although rests are usually short term (a few days), it is not uncommon to see rest with a lifespan of up to two years. The re-board operations take place in three forms: indicated delivery, tri-party and detention (where the “selling” party maintains the guarantee during the life of the pension). The third form (Hold-in-custody) is quite rare, especially in development-oriented markets, due in part to the risk that the seller may intervene before the transaction is completed and that the buyer will not be able to recover the guarantees issued as collateral for the transaction. The first form – the indicated delivery – requires the delivery of a predetermined loan at the beginning and maturity of the contract. Tri-Party is essentially a form of trading basket and allows a wider range of instruments in the basket or pool. In the case of a tripartite repurchase transaction, a third-party agent or bank is placed between the “seller” and the buyer. The third party retains control of the securities that are the subject of the agreement and processes payments made by the “seller” to the buyer.

In order to manage the risks associated with rest, the Bank of Russia sets discounts for each eligible security. Haircuts are based on credit quality, liquidity and other specific characteristics of eligible assets. The Bank of Russia sets the initial, upper and lower discounts and calculates the current haircut for deposits lasting more than one day on a daily basis. From the buyer`s point of view, a reverse repot is simply the same buyout contract, not the seller`s. Therefore, the seller executing the transaction would call it a “repo,” whereas in the same transaction, the buyer would refer to it as a “reverse repo.” “Repo” and “Reverse repo” are therefore exactly the same type of transaction that is described only from opposite angles. The term “reverse-repo and sale” is commonly used to describe the creation of a short position on a debt security in which the buyer immediately sells on the open market the guarantee provided by the seller as part of the repurchase transaction. At the time of the count, the buyer acquires the corresponding guarantee on the open market and the pound to the seller. In the case of such a short transaction, the buyer expects the corresponding warranty to decrease between the rest date and the billing date. Thus, the Bank of Russia can buy securities from credit institutions not only for the ruble, but also for foreign currencies.