- Elgar Financial Law and Practice series
Chapter 18: SPECIAL ISSUES ARISING FROM THE USE OF FINANCIAL COLLATERAL IN REPOS, SECURITIES LENDING AND PRIME BROKERAGE, INCLUDING TREATMENT OF CLIENT ASSETS AND USE OF MARKET STANDARD DOCUMENTATION (OTHER THAN ISDA DOCUMENTATION)
‘Repos’, or ‘sale and repurchase agreements’, form a convenient and informal alternative to agreements for secured lending. They take effect by way of title transfer. Dr Joanna Benjamin explains repos as follows: ‘Instead of being the chargee or mortgagee, the collateral taker is the purchaser of the collateral (interests in) securities; cash is provided to the collateral giver as the purchase price of the collateral (interests in) securities, and not as a loan. At the end of the arrangement, equivalent (interests in) securities are repurchased. The repurchase price exceeds the purchase price by a sum of money (called the ‘price differential’) which is calculated at an annual rate, and which is economically equivalent to an income payment on the principal sum which was advanced to the collateral giver.’ What is a ‘repo’ to the collateral-provider is a ‘reverse repo’ to the collateraltaker. A repo is intended to operate in a similar way to a secured loan so that the collateral-provider can raise finance against the collateral transferred to the collateral-taker. As we have seen, repos entered into in the London market are normally governed by English law and incorporate one of the Global Master Repurchase Agreement (‘GMRA’) standard forms. At the time of writing the latest of the GMRA standard forms is the 2011 version which can be used for buy/sell back transactions as well as repos strictly so-called.
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