Dollar Repurchase Agreement

Generally speaking, credit risk for real transactions depends on many factors, including the terms of the transaction, the liquidity of the security, the specificities of the counterparties involved and much more. In case of positive interest, it can be considered that the repurchase price PF is higher than the initial selling price PN. As in many other corners of finance, pensions include terminology that is not common elsewhere. One of the most common terms in the repo area is « leg ». There are different types of legs: for example, the part of the retirement transaction in which the security is originally sold is sometimes referred to as the « starting leg », while the next redemption is the « narrow part ». These terms are sometimes replaced by « near leg » or « distant leg ». In the period close to a repo operation, the title is sold. Dubbed « repo 105 » and « repo 108, » investment bank Lehman Brothers used Lehman Brothers as a creative accounting strategy to strengthen its profitability ratios for a few days during the reference season, mistakenly classifying rest as real sales. New York Attorney General Andrew Cuomo claimed the practice was fraudulent and took place under the supervision of audit firm Ernst & Young. E&Y has been the subject of accusations that the company allowed the practice of using repos to « secretly remove tens of billions of dollars worth of securities from Lehman`s balance sheet in order to give a false impression of Lehman`s liquidity and thus deceive the invested public. » [19] An open retirement transaction (also known as a « pension on demand » operates in the same way as a term allowance, except that the trader and the counterparty accept the transaction without setting the maturity date. On the contrary, both parties can terminate the trade by informing the other party before an agreed daily deadline. If an open repo is not completed, it is automatically overwritten every day.

Interest is paid monthly and the interest rate is regularly reassessed by mutual agreement. The interest rate on an open repo is usually close to the federal funds rate. An open repo is used to invest cash or to fund assets if the parties don`t know how long it takes them. But almost all open agreements are concluded within a year or two. A repo is technically a one-time transaction, while a sell/buy is a pair of transactions (a sale and a buy). The sale/redemption does not require specific legal documents, whereas a repo usually requires a framework contract between the buyer and the seller (usually the Global Master Repo Agreement (GMRA) ordered by SIFMA/ICMA). For this reason, an increase in risk compared to repo is associated. In the event of default by the counterparty, the absence of an agreement may reduce the legal position on the recovery of collateral. Any coupon payment on the underlying security during the term of the sale/redemption is generally returned to the purchaser of the security by adjusting the cash paid at the end of the sale/redemption.

In a repo, the voucher is immediately sent to the security seller. Since Tri-Party agents manage the equivalent of hundreds of billions of dollars in global collateral, they are the size to subscribe to multiple data streams to maximize the coverage universe. Under a tripartite agreement, the three parties to the agreement, the tri-party agent, the collateral taker/cash provider (« CAP ») and the repo seller (Cash Borrower/Collateral Provider, « COP ») agree to a collateral management agreement that includes a « collateral eligible profile ». There are mechanisms built into the contractual buyout space to reduce this risk. .

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