repurchase agreement

repurchase agreement ( RP)

A form of secured, short-term borrowing in which a security is sold with a simultaneous agreement to buy it back from the purchaser at a future date. The purchase and sales agreements are simultaneous but the transactions are not. The sale is a cash transaction while the return purchase is a forward transaction since it occurs at a future date. The seller/borrower pays interest to the buyer at a rate negotiated between the parties. Rates paid on repos are short-term money market interest rates and are completely unrelated to the coupon rate paid on the instrument being purchased. Informally known as repos.

Sometimes called a classic repo to distinguish between these transactions and sell/buybacks. Every transaction where a security is sold under an agreement to be repurchased is a repo from the seller/borrower's point of view and a reverse from the buyer/lender's point of view. Repos and reverses are often used to finance investment purchases, especially by traders. American Banker Glossary

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An agreement with a commitment by the seller ( dealer) to buy a security back from the purchaser ( customer) at a specified price at a designated future date. Also called a repo, it represents a collateralized short-term loan for which, where the collateral may be a Treasury security ( Treasury securities), money market instrument, federal agency security , or mortgage-backed security. From the purchaser's (customer's) perspective, the deal is reported as a reverse repo. Bloomberg Financial Dictionary

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Meaning sale and repurchase agreement. An agreement to sell a bond (often a government bond) at one price with a simultaneous agreement to repurchase the bond at a later date at a price agreed today. Effectively, a repo trade enables the holder of a bond to borrow money while using the bond as financial collateral with the lender. Dresdner Kleinwort Wasserstein financial glossary

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repo / buybacks / RPs Euroclear Clearing and Settlement glossary

Contract to sell and subsequently repurchase securities at a specified date and price. Economically, it represents a cash loan against securities collateral. Full ownership of the securities is transferred, with a firm commitment that the seller will repurchase the securities at an agreed price and date. Euroclear Clearing and Settlement glossary

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Borrowing funds by providing a government security for collateral and promising to 'repurchase' the security at the end of the agreed upon time period. The associated interest rate is the 'repo rate'. LIFFE

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repurchase agreement repurchase agreement ➔ agreement

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   A repurchase agreement or Repo is a transaction in which Party A sells a security to Party B and agrees to repurchase it at a specific date in the future and at a pre-agreed price. Repos allow Party B to borrow securities and sell them short in the belief that they can be bought back in the market at a cheaper price by the time they must be returned to Party A. The advantage for party A is that it earns added income by lending the securities. Through this operation trader B is effectively a borrower of funds to finance further purchases of securities, and he pays interest to the holder, trader A. The rate of interest used is known as the repo rate. A reverse repo is the reverse situation, whereby the Party A agrees to buy securities from Party B and sell them back at a pre-agreed price and date. Party B is then effectively the lender of funds. Some central banks use repos and reverse repos in government debt as part of their money market operations.

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repurchase agreement UK US noun [C] (also sale and repurchase agreement, also INFORMAL repo, repo agreement) FINANCE, STOCK MARKET

► an agreement to sell bonds, shares, etc. and buy them back at a later date: »

The issuer of a repurchase agreement must not fail to repurchase the underlying security within the specified time.

→ Compare REVERSE REPURCHASE AGREEMENT(Cf. ↑reverse repurchase agreement)