Master Sale And Repurchase Agreement

Pension transactions are generally considered to be a reduction in credit risk. The biggest risk in a repo is that the seller does not maintain his contract by not repuring the securities he sold on the due date. In these cases, the purchaser of the guarantee can then liquidate the guarantee in an attempt to recover the money he originally paid. However, the reason this is an inherent risk is that the value of the warranty may have decreased since the first sale and therefore cannot leave the buyer with any choice but to maintain the security he never wanted to maintain in the long term, or to sell it for a loss. On the other hand, this transaction also poses a risk to the borrower; If the value of the guarantee increases beyond the agreed terms, the creditor cannot resell the guarantee. 2) Cash payment on the redemption of the guarantee Cash paid on the initial sale of securities and the cash paid at the time of the repurchase depend on the value and type of guarantee related to the pension. In the case of a loan. B, both values must take into account the own price and the value of the interest accrued on the loan. 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. With respect to securities lending, it is used to temporarily obtain the guarantee for other purposes, for example. B for short position hedging or for use in complex financial structures. Securities are generally borrowed for a royalty, and securities borrowing transactions are subject to other types of legal agreements than deposits. Like many other corners of finance, retirement operations contain terminology that is not common elsewhere.

One of the most common terms in repo space is “leg.” There are different types of legs: for example, the part of the retirement activity that originally sells security is sometimes called “starting leg,” while the subsequent buyback is the “close leg.” These terms are sometimes replaced by “Near Leg” or “Far Leg.” Near a repo transaction, security is sold. In the far part, it is redeemed. Because triparties manage the equivalent of hundreds of billions of dollars in global guarantees, they have the subscription scale to multiple data streams to maximize the coverage universe. As part of a tripartite agreement, the three parties to the agreement, tripartite representatives, collateral/cash suppliers (“CAP”) buyers and repo sellers (“COP”) agree on a protection management agreement, including a “legitimate collateral profile.” Mr. Robinhood. “What are the near and far legs in a buyout contract?” Access on August 14, 2020. While conventional deposits are generally instruments that are sifted against credit risk, there are residual credit risks. Although this is essentially a guaranteed transaction, the seller may not buy back the securities sold on the due date.

In other words, the pension seller does not fulfill his obligation. Therefore, the buyer can keep the warranty and liquidate the guarantee to recover the borrowed money.