Securities Lent Under Repurchase Agreements

In a repurchase agreement, the lender is exposed to the risk that the borrower will not buy back the securities. If the borrower does not repurchase the securities within the agreed period, the lender may sell the securities on the market, but often to reduce that risk, the borrower will offer collateral in the form of securities. 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. It is redeemed at the back. In particular, in a pension institution, Part B acts as a lender, while Seller A acts as a cash borrower and uses the guarantee as collateral; in an inverted repo (A) is the lender and (B) the borrower. A pension is economically similar to a secured loan, with the buyer (actually the lender or investor) obtaining guarantees to protect themselves from a seller`s default. The party that sells the securities at first is actually the borrower. Many types of institutional investors conduct repo transactions, including investment funds and hedge funds. [5] Almost all guarantees can be used in a repo, although highly liquidated securities are preferred, as they can be sold more easily in the event of default and, more importantly, they can easily be obtained on the open market, where the buyer has created a short position in the pension guarantee through an inverted repo and a sale in the market; at the same time, against liquid securities is not recommended. When the Federal Reserve`s open market committee intervenes in open market transactions, pension transactions add reserves to the banking system and withdraw them after a specified period; Rest first reverses the flow reserves, then add them again.

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