Talk:Repurchase agreement
From Wikipedia, the free encyclopedia
 |
This article is part of WikiProject Finance, an attempt to better organize information in articles related to Finance. If you would like to participate, you can edit the article attached to this page, or visit the project page, where you can join the project and/or contribute to the discussion. | |
| B | This article has been rated as B-Class on the project's quality scale. (If you rated the article please give a short summary at comments to explain the ratings and/or to identify the strengths and weaknesses.) |
|
 |
This article is within the scope of the Business and Economics WikiProject. | |
| ??? | This article has not yet received a rating on the assessment scale. | |
| ??? | This article has not yet received an importance rating on the assessment scale. | |
Why is the abbreviation for repurchase agreement repo?
Contents |
[edit] Legal distinction
What are the legal statuses regarding entitlement (legel owner, coupon & dividend payments) during a repo?
The seller of the bond retains the right to the coupon (or dividend) during the life of the Repo. The coupon will be paid to the whoever owns the bond during the Repo but this must be paid on to the seller.
Correct on the above. Operationally, the owner of the bond during the Repo period "manufactures" a similar payment to the Repo seller. This is true in classic repo transactions. As repo transactions are true sale/repurchase transactions, legal title transfer is effected at the start leg of the transaction, and at the maturing leg. — BernardChin 12:43, 6 October 2006 (UTC)
[edit] Investing in repos
Why is it so damn hard to find someone that knows about them and with whom you can invest in repos? You'd think private banking and ivestment baning reps would know about a USD 5 trill. market. --Kimonandreou 18:28, 12 January 2006 (UTC)
Repos are generally about lending or borrowing large amounts of money i.e. not something for the private investors. Even if acting as an intermediary and making profits on the spread between reversing and repoing the spreads are tight so you need a lot of capital to start with, not to mention settlement facilities etc.
If you happen to hold very large quantities of high quality bonds and want to raise cash more cheaply than unsecured lending, I'm sure you can find an investment bank that would be interested in talking to you.
Practically, it is a question of scale and efficiency when trade amounts are small. Retail repos exist in countries such as Taiwan and Korea. You would naturally expect retail repo rates to be wider (bid/ask) then institutional levels. (Practitioner) — BernardChin 12:29, 6 October 2006 (UTC)
[edit] Using Convertible Bonds as underlying security in Repos
What are the key issues to consider when structuring a Repo using convertible bonds as the underlying security?
- Depends. usually you'd want to avoid using convertibles for GC (general collateral) repos -- trades in which the underlying securties don't matter so long as they are of a certain (investment) quality. If a convertible bond comes up as a special (ie, someone, either yourself or the street wants it), arrangements will be made, but usually special precautions have to be taken. The same is true of pretty much every type of nonstandard bonds. RobLinwood 02:45, 9 May 2006 (UTC)
These days, repo markets have advanced and collateral types include convertible bonds, asset-backed securities, structured-notes, regular liquid government bonds, and equities. You just have to address the increased risks given the liquidity of the collateral. — BernardChin 12:32, 6 October 2006 (UTC)
[edit] Typo?
What does this sentence mean?
Securities Lending While general motivation of Repo is the borrowing or lending of cash, is securities lending the motivation is to temporarily obtain the security for other purposes, such as covering short positions or for use in complex financial structure. Securities are generally lent out for a fee. Securities lending trades are governed by different types of legal agreements to Repos.
Economically, Repos or SecuritiesLending can accomplish purposes as funding or securities-covering. Legally, the transactions are similar with title transfers. However, they are legally governed by different master agreements. — BernardChin 12:40, 6 October 2006 (UTC)
[edit] Whether repo is a transaction of capital market
Is repo a transaction of capital market? Or is it only a transaction of money market?
- Don't look for an absolute "truth" on this one. Since a repo is esentially a short term loan it fits the usual definition of "money market." But since it formaly involves buying and selling long-term bonds, at least in a purely formal sense, it is a capital market transaction. I'll say "money market" is most accurate. Smallbones 10:02, 11 July 2006 (UTC)
Arguably both. Textbook authors usually focus on capital *or* money market. Repos straddle both markets. Those who argue for money market tend to be cash-focused. Those who argue for capital market tend to be security-focused. — BernardChin 12:35, 6 October 2006 (UTC)
[edit] Maturity of Repos
Is there any particular advantage in trading repos with a short maturity e.g. overnight compared to say 6 months? What market conditions would a longer contract benefit over a shorter one?Euanbeer 09:33, 22 September 2006 (UTC)
Depends what risk/return you want. Longer term repos lock you into term interest rate risk, versus say overnight interest rate risk. Operationally, if you do overnight repos, you have to do them (roll them) again the next day, and this can get tedious. Consequently, the market also has a OPEN repo, in addition to overnight and term repos. — BernardChin 12:39, 6 October 2006 (UTC)
[edit] Repo rate vs Treasury and Fed Funds rate
Is it true that the repo rate is higher than the treasury yield, but lower than fed funds rate? Is this true in general, or does this apply only to the US? Finnancier (talk) 12:11, 16 December 2007 (UTC)
