repositioning repurchase agreement

A funding technique often used by dealers who encourage speculation through the use of gains trading, pair-off, when-issued, and extended settlement ploys. When an investor agrees to purchase a security with the intent of quickly selling it for a profit, price movements do not always favor these speculations. The repositioning repurchase agreement is service offered by dealers to enable buyers to hold onto such speculative positions until prices change and the position can be closed out at a profit. In a repositioning repurchase agreement, the buyer pays the dealer a small margin that approximates the actual loss in the security. The dealer then agrees to fund the purchase of the security by entering into a repurchase/reverse repurchase agreement with the buyer. (The transaction is a borrowing called a repurchase agreement for the buyer. It is a loan called a reverse repurchase agreement for the dealer.) These transactions are deemed to be inherently speculative. American Banker Glossary