Tripartite Repo Agreement

For traders in trading companies, deposits are used to finance long positions, to have access to more advantageous financing costs for other speculative investments and to hedge short positions in securities. The triparty agent is responsible for services such as collateral selection, payment, settlement, custody and administration. The introduction of Tri-Party Repos is likely to help improve liquidity in the bond market, providing markets with another repo instrument for government bond repo. While conventional deposits are generally credit risk instruments, there are residual credit risks. Although it is essentially a secured transaction, the seller can no longer redeem the securities sold on the maturity date. In other words, the repo seller is no longer in default in his commitment. Therefore, the buyer can keep the guarantee and liquidate the guarantee to recover the money loaned. However, the security may have lost its value since the beginning of the transaction, as the security is subject to market movements. In order to reduce this risk, deposits are often over-undersured and are subject to a daily market margin (i.e. if assets lose value, a margin call can be triggered to ask the borrower to publish additional securities). Conversely, when the value of the security increases, the borrower runs a credit risk, since the creditor is not allowed to resell them. If this is considered a risk, the borrower can negotiate a subsecured repo. [6] A repo transaction, also known as a “pension” or “pension” or “pension”, is a form of short-term borrowing, mainly in government bonds.

The trader sells the underlying security to investors and, after consultation between the two parties, resells it shortly thereafter, usually the next day, at a slightly higher price. Despite the similarities with secured loans, deposits are real purchases. However, since the buyer has only temporary ownership of the collateral, these agreements are often treated as loans for tax and accounting purposes. In the event of insolvency, investors can sell their assets in most cases. This is an additional distinction between repo credits and secured loans; Although the transaction is similar to a loan and its economic impact is similar to a loan, the terminology differs from that of credit: the seller legally buys the securities from the buyer at the end of the loan period. However, one of the essential aspects of rest is that they are legally recognised as a single transaction (significant in the event of the insolvency of the counterparty) and not as an assignment and redemption for tax purposes. By structuring the transaction as a sale, a repo offers lenders considerable protection against the normal operation of U.S. bankruptcy laws, such as. B automatic suspension and avoidance provisions. As in many other corners of finance, pensions include terminology that is not common elsewhere. One of the most common terms in the repo area is “leg”. There are different types of legs: for example, the part of the retirement transaction in which the security is originally sold is sometimes referred to as the “starting leg”, while the next redemption is the “narrow part”.

These terms are sometimes exchanged as “near leg” or “distant leg”. . . .

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