There are a number of differences between the two structures. 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. This is a kind of retreat where stocks are used instead of bonds. The underlying security of the transaction will be the stock of a company.
In most cases, repo transactions use government bonds because they are very safe. However, this type of retirement increases a small risk for the operation, since they use shares of the company. 6. Central banks may use repo as an integral part of their open market operations to inject/withdraw liquidity into and out of the market, as well as to reduce short-term volatility, in particular as regards exchange rate rates. In such cases, bank reserves and call rates are used as operational instruments to ease/rationalize monetary conditions. Financial Services Inc., an investment bank, wants to find some money to cover its operations. He worked with cash`n` Capital Bank to purchase $1 million of U.S. Treasury bonds, cash`n`Capital paying $900,000 and Financial Services Inc.
obtaining the $1 million bonds. When the pension loan matures, the cash will receive US$1 million plus interest, and Financial owns US$1 million in securities. This is a simple buyout agreement. The interest rate of 3000 $US is the repo rate for this transaction. In the case of a buy-sell repo (normal repo as described above), the lender effectively takes possession of the assets. Here, a security is sold directly and redeemed at the same time for later resolution. In the case of a sell-repo buyback, ownership is transferred to the buyer and he therefore retains the coupon interest due on the bonds. . . .