Repo Agreement Contract

The repo market is important for at least two reasons: to determine the actual costs and benefits of a buyback contract, a buyer or seller interested in the transaction must take into account three different calculations: a sale/buyout is the cash sale and a forward redemption of a security. These are two separate pure elements of the cash market, one for settlement in advance. The futures price is set against the spot price in order to obtain a market return. The basic motivation of Sell/Buybacks is generally the same as in the case of a conventional repo (i.e. the attempt to take advantage of the lower financing rates generally available for secured loans, unlike unsecured loans). The profitability of the transaction is also similar, with interest on the money borrowed from the sale/purchase being implicitly included in the difference between the sale price and the purchase price. Investment bank Lehman Brothers used deposits dubbed “repo 105” and “repo 108” as a creative accounting strategy to support its profitability reports for a few days during the reference season, and incorrectly characterized deposits as true sales. New York Attorney General Andrew Cuomo said the practice was fraudulent and took place under the authority of the audit firm Ernst and Young. Accusations have been laid against E-Y, according to which the company authorized the practice of using deposits for “the secret removal of tens of billions of securities from Lehman`s balance sheet in order to give a false impression of Lehman`s liquidity and to mislead the public invested”.

[19] For the party that sells the warranty and agrees to buy it back in the future, it is a repo; for the party at the other end of the transaction, the purchase of the warranty and the consent to sell in the future, it is a reverse buyback contract. An inverted repository is replaced by a repo with the A and B rolls. In a repo, the investor/lender provides cash to a borrower, the loan being secured by the borrower`s collateral, usually bonds. If the borrower becomes insolvent, the guarantee is granted to the investor/lender. Investors are generally financial enterprises such as money funds, while borrowers are non-intrusive financial institutions, such as investment banks and hedge funds. The investor/lender calculates an interest rate called “pension rate” $X the granting of loans and recovers a higher amount $Y. In addition, the investor/lender may demand guarantees that require a value greater than the amount he lends. This difference is the “haircut.” These concepts are illustrated in the diagram and in the equations section. If investors are at greater risk, they may charge higher pension interest rates and demand higher reductions. A third party may be involved to facilitate the transaction; In this case, the transaction is called a “tri-party deposit.” [3] Some forms of repo operations have been highlighted in the financial press due to the technical details of the comparisons that followed the collapse of Refco in 2005.