Repo Agreement Short Selling

The deposit market is an important source of money for large financial institutions in the non-deposit banking sector, which can compete with the traditional bank deposit sector in its size. Large institutional investors, such as money funds, lend money to financial institutions such as investment banks, either in exchange (or through secured guarantees), such as government bonds and mortgage-backed securities held by borrowing financial institutions. It is estimated that $1 trillion a day of guarantees are being implemented in U.S. pension markets. [1] [2] There are a number of differences between the two structures. A repo is technically a single transaction, while a sale/buyout is a pair of transactions (a sale and a purchase). The sale/purchase does not require specific legal documents, whereas a repo usually requires a master`s agreement between the buyer and the seller (usually the Global Master Repo Agreement (GMRA) mandated by SIFMA/ICMA). For this reason, there is an increase in the risk associated with Repo. If the counterparty were to become insolvent, the absence of an agreement could reduce the legal position on appeal. As a general rule, any coupon payment on the underlying warranty during the duration of the sale/buyback is returned to the purchaser of the guarantee by adjusting the cash paid at the end of the sale/purchase. In a repo, the coupon is immediately passed on to the security vendor. Central banks such as the US Federal Reserve, the European Central Bank and the RBA actively participate in the repo market and allow banks to sell them securities considered “eligible” for short-term deposits. They use the pension market as part of their open market operations to control short-term interest rates and manage liquidity and reserves in the banking system.

The purchase of eligible securities from banks through a back-rest adds reserves and liquidity, and the sale of securities to banks through rest removes reserves and liquidity from the banking system. In Australia, the RBA estimates that the pension market is about AUD 110 billion, but about 5.5 trillion euros in Europe and 4.6 trillion dollars in the United States. There are three main types of retirement operations. The main difference between a term and an open repo is between the sale and repurchase of the securities. However, this possibility is used more often in the public pension market than in the credit market. Indeed, the credit market is not as sensitive as the public market for public debt when it comes to renegotiating interest rate spreads, which are large enough to reduce sensitivity, as well as the underlying sizes of transactions, which are significantly smaller than in the public pension market. Indeed, most counterparties tend to ask for a re-rate only if prices change significantly, for example. B in the case of a loan that becomes very special. At this stage, we would like to present some of the peculiarities of the repo credit market, in particular the European market. Market-makers for corporate bonds are the main users of the credit market. In particular, market Maker Repo uses to finance their positions (most of the time, the general collature is used for this purpose) and acts on certain topics they do not have in the inventory (Special Repo is used here). The Fed has also conducted daily and long-term repurchase operations.

Given the tightness of short-term interest rates, the volatility of the repo market may spread slightly at the key rate. The Fed can take direct action to keep the key rate within its target range by proposing its own renu possibly resealing operations at the Fed`s target rate. When the Fed first intervened in September 2019, it was offering at least $75 billion a week in daily rest and $35 billion in long-term rean already.