Repo terminology
‘Repo’ is the generic term for two equivalent instruments:
repurchase agreements (also known as ‘classic repos’)
buy/sell-backs.
Repurchase agreements and buy/sell-backs share the same basic legal and operational mechanisms (i.e. a sale of assets and a commitment by the seller to repurchase those assets from the buyer at a later date).
The principal differences between a repurchase agreement and a buy/sell-back stem from the fact that repurchase agreements are always documented (i.e. they are evidenced by a written contract), whereas traditional buy/sell-backs are not. Consequently, the two legs of a repurchase agreement are part of a single legal contract, whereas the two legs of a traditional, undocumented buy/sell-back are implicitly separate contracts.
Many of the terms used in the market to describe repos are taken from standard legal agreements, such as the Global Master Repurchase Agreement (GMRA), which are commonly used to document transactions in the international repo market.
Seller → Collateral-provider, cash taker (borrower)
Buyer → Collateral-taker, cash provider (lender)
Purchase → Sale of assets at the start of the repo
Repurchase → Repurchase of assets at the end of a repo
Purchase date → Value date: the date of which cash and assets are exchanged.
Repurchase date → Maturity date: the date on which cash and assets are returned to their original owners.
Purchase price → Cash value paid by the buyer of assets to the seller on the purchase date.
Repurchase price → Cash value paid by the seller of assets to the buyer on the repurchase date, equal to the purchase price plus a return on the use of cash over the term of the repo. In buy-sellbacks, the repurchase price may be net of coupon or dividend payments made on the assets during the term of the repo.
Collateral → Assets sold in a repo on the purchase date.
Equivalent collateral → Assets repurchased in a repo by the seller on the repurchase date.
Repo rate → Percentage per annum rate of return by the seller for the use of the cash over the term of a repurchase agreement and included in the repurchase price.
