Scribd
Upload
180 views

Repurchase Agreements

Repurchase agreements (repos) allow dealers to borrow short-term through the sale and repurchase of government securities. The dealer sells securities to investors overnight and buys them back the next day. Repos provide liquidity, yield advantages over other money market instruments, and flexibility. However, they require immediate cash capital and expose both parties to risk. The document then describes various types of repos and their key features, as well as advantages and limitations of repos. It concludes by covering the Bangko Sentral's terms for entering repo agreements.

Uploaded by

Cristhyl Joyce Creer Valderama
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
180 views

Repurchase Agreements

Repurchase agreements (repos) allow dealers to borrow short-term through the sale and repurchase of government securities. The dealer sells securities to investors overnight and buys them back the next day. Repos provide liquidity, yield advantages over other money market instruments, and flexibility. However, they require immediate cash capital and expose both parties to risk. The document then describes various types of repos and their key features, as well as advantages and limitations of repos. It concludes by covering the Bangko Sentral's terms for entering repo agreements.

Uploaded by

Cristhyl Joyce Creer Valderama
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 18

REPURCHA

SE
AGREEME
NTS

Repurchase Agreements
DEFINITION:
It is a form of short term
borrowing for dealers in
government securities.
The dealers sells the
government securities to
investors, usually on an
overnight basis and buys the
back the following day.

Repurchase Agreements

Repos are classified as


money-market instrument
The buyer acts as a short-term
lender, the seller acts as a
short term borrower and the
securty is the collateral.

Types of Repurchase Agreements

1. Third party Repurchase


Agreements
- a clearing agent or bank conducts
the transactions between the buyer
and the seller and protects the
interests of each.
- it holds the securities and ensures
the seller receives cash at the onset of
the agreement and the buyer transfer
funds for the benefit of the seller and
delivers the securities at maturation.

Types of Repurchase Agreements

2. DUE BILL/ Held-in Custody Repo


- The seller receives cash for the sale of the security
but holds it in a custody account for the buyer
-an internal account is used to keep the collateral
for the lender. While a borrower would typically take
the collateral to the lender, she instead places it in
another bank account.
-This account is held under the name of the
borrower for the duration of the transaction.
-not commonly used because it puts the lender in a
position of risk since they are not fully in control of
the collateral.

Types of Repurchase Agreements

3. EQUITY REPO
-uses equities instead of bonds. The
underlying security of the transaction will
be stock in a company.
-In most cases, repo agreements use
government bonds because they are very
safe. However, this type of repurchase
agreement adds a little bit of risk to the
transaction because they are using
company stock.

Types of Repurchase Agreements

4. WHOLE LOAN REPO


-they use a loan or some other debt
obligation as the collateral instead of a
financial security.
-For example, they might use a
mortgage loan instead of stocks

Types of Repurchase Agreements


5. SELL BUY REPO
-a formal repurchase agreement is
not actually put into place. Instead,
they will sell a security and buy it on a
forward repurchase at the same time.
-completed in the financial markets.

Types of Repurchase Agreements


6. SECURITIES LENDING
- done when an investor wants to
go short on a particular type of
security.
-He has to borrow the security in
order to complete the financial
transaction. Then he will give the
security back to the lender.

Advantages of Repurchase
Agreements
LIQUIDITY

Repos allowthe managers to invest cash


overnight, making them a critical component in their
effort to manage liquidity. The size of the market
and supply of repos also provide for strong liquidity.
YIELD ADVANTAGE Repos have historically provided
additional yield as compared to traditional money
market instruments, such as
Treasury bills, time deposits or agency discount notes. The
yield advantage depends on such factors as the repos
maturity date and its credit quality.
FLEXIBILITY

The daily principal amount of repos can


be adjusted up or down as fund cash flows
dictate and transactions can be conducted late in
the day.

Limitations of Repurchase
Agreements as a control measure
Requires

a potential investor to
have immediate cash capital in a
large amount.
Once the two parties are
matched, both are exposing
themselves to certain risks.

USES:
The

Fed uses repurchase


agreements to make
collateralized loans to primary
dealers.

Repurchase agreements with


Bangko Sentral
a.

Repo agreements may be


effected with the BSP subject to
the following terms and
conditions:
(1) Rate. The rates on the repo
agreement facility shall be set by
the Treasury Department, with
the concurrence of the Governor,
taking into account prevailing
liquidity/market conditions.

Repurchase agreements with


Bangko Sentral
(3)

Security. Only obligations of


the National Government and its
instrumentalities and political
subdivisions, which are fully
guaranteed by the Government,
with a remaining maturity of not
more than ten (10) years and
which are freely negotiable and
regularly serviced

Repurchase agreements with


Bangko Sentral
(2)

Term. At the option of the


Treasury Department, availments
may be for a minimum of one (1)
day (overnight) and a maximum
of ninety-one (91) days.

Repurchase agreements with


Bangko Sentral
(4)

Delivery. Delivery of the


underlying instruments shall be made
to the BSP at the prescribed time.
For overnight repo agreements, delivery
of the underlying instruments shall be
made not later than 12:00 noon of the
date of transaction.
Government securities which are held by
the issuer of the repo agreement under
the book-entry system with the BSP may
be used as underlying instruments only
with the conformity of the BSP.

Repurchase agreements with


Bangko Sentral
(5)

Upon termination of the repo


agreement, the issuer of such
agreement shall claim and take
delivery of the underlying
instruments at the Treasury
Department, BSP.
Failure to claim and take delivery of the
underlying instruments immediately upon
such termination shall relieve the BSP of
any liability or responsibility for the loss
or misplacement of said instruments

You might also like