Repurchase agreement

(Repo).

1.

A form of secured borrowing using a simultaneous agreement to:

(i) Sell securities at the start of the contract, and

(ii) Buy them back later at a pre-agreed (higher) price at a fixed future date.

The party selling securities (usually bonds, gilts, treasuries or other government or tradable instruments) at the start of the contract is the borrower, receiving cash at the start and tied to an agreement to buy the securities back at a specified later date and price.

In the event of the borrower's default, the lender (party providing the cash to the borrower) can sell the collateralised security to recoup some or all of its investment.

A reverse repurchase agreement (reverse repo) is the mirror image of the repo transaction, from the investor/lender’s view – and could logically have been called a “re-sale agreement”.

2.

By extension, collateralised borrowing using securities as the collateral (without legal transfer of the securities).

See also

• Bilateral repurchase agreement
• Global Master Repurchase Agreement
• Tri-party repurchase agreement
• Collateral
• Haircut
• Reverse repurchase agreement
• Security

References

1. The ACT has published a briefing note on Investing in Repos http://www.treasurers.org/repos