REPO transactions. Repo transactions with securities

Repo transactions can be called a new stage in the development of lending. They are a more convenient and reliable option for such. The subject of operations of this type is usually securities, because they have high liquidity and some other advantages. In some cases, the subject of the transaction may be real estate or other property. In addition, REPO transactions can be actively used in the course of exchange trades.

It is worth noting that the law on securities ("On the securities market", FZ) has already made the necessary additions to regulate the conduct of such operations. This made them even more reliable and excluded the possibility of conflict situations between the parties.

Definition

Repurchase transactions are procedures in the course of which the sale of any valuables is carried out, accompanied by their return purchase within a specified period at the price fixed at the time of the transaction. Reverse purchase is mandatory, representing the final (second) stage of the transaction.

The value of the values on which the parties rely on the first stage of the transaction is usually different from the value according to which the second stage will pass. The difference is possible both in the large and in the smaller side. This difference, expressed as a percentage, is called the REPO rate. In all cases, both prices are fixed at the conclusion of the transaction and do not change afterwards.

Application

The scope of REPO transactions is extensive. Being used for the first time in the beginning of the 20th century, now they are concluded by a huge number of individuals and organizations everywhere. They have become very popular at the interbank level, they can also be concluded by various organizations with banks or other organizations.

There are examples in which REPO deals were concluded for other purposes. Namely - to obtain a loan, the obligation under which does not relate to credit debt and does not stack with it at the documentary level. That is, having concluded a number of such transactions, the organization can receive at its disposal a significant amount, but not to have a credit debt (according to documents).

In lending

Lending is the main purpose of repo transactions. Such procedures are a convenient alternative to conventional lending. As a matter of fact, the seller takes out money means of the buyer for temporary use, selling to him values. At the second stage of the transaction, after a certain time, the seller redeems the same values back, regaining ownership of them, and the buyer - his cash.

In the event that the seller does not have the necessary amount for the purchase of valuables, they will remain the property of the buyer. That is why such procedures are considered the most reliable option for lending. Their additional advantage is a fixed price, which is established at the time of the conclusion of the transaction and for which the seller will have to repurchase the valuables at the second stage.

In exchange business

In the course of exchange trades, some participants sometimes face the need to sell assets that they do not have available. In this case, a repurchase transaction may be concluded with the person in whose possession the required assets are. He's a bidder buys these assets and resells them at his discretion, opening a "short" position. Over time, the "short" position is closed, as a result of which the values are returned to the bidder, and he returns them to the original owner, completing the repo transaction.

The initial owners are usually stock brokers. REPO deals were initially concluded only with securities, but now it is possible to conduct them with respect to goods and securities, since for brokers such transactions are the most convenient way for traders to open short positions.

Kinds

There are many options for carrying out this procedure. For each group of cases, the parties can choose the most appropriate terms of the transaction. The main conditions under which it is possible to distinguish different types of such transactions are timing and direction.

Under the terms understand the time after which the obligations of the second stage of the transaction will be fulfilled. Under the direction - the nature of the actions of each of the parties in the first and second stages of the procedure.

Towards

In the direction of such operations can be considered direct or reverse. It depends on the role of each of the parties in the first stage of the transaction. That is, for one of the parties the transaction is direct, and for the other - the reverse.

• Transactions of direct REPO: the party acts in the role of the seller, undertaking to make the subsequent repurchase of the sold values.
• Reverse repurchase transactions: the party acts as a buyer, from whom the seller undertakes to redeem the valuables back in the second stage.

By deadline

The deadline for execution is the period through which the obligations of the second stage must be fulfilled. On this basis, such transactions can be intraday, urgent or open.

• Open: distinguished by the fact that no time limits are set, only a fixed price is set, at which the redemption of values should be made.
• Urgent: have a set time for the onset of the second stage, exceeding one day, before the expiration of the term are considered effective.
• Intraday: the ransom of valuables must be made the next day.

Features

One of the features is how the REPO transactions are recorded. Despite the fact that during the procedure, the sale is carried out twice (first by the seller to the buyer and then back), only the profit that one of the parties receives is taxed in view of the difference in the amounts paid for the same assets in the first and second stages of the transaction.

In addition, the peculiarities of REPO were some ambiguities, which the parties should pay attention to earlier. Subsequently, the law on securities was properly supplemented, so such ambiguities were eliminated.

Benefits

The main advantage is the minimum risk. If one of the parties fails to fulfill its obligations in the second stage, the other party will retain either cash or other valuables for exactly the same amount. The only source of danger may be an excessively high dynamics of changes in the value of these values. Depending on the situation, this factor can bring some additional profit, as well as certain losses.

In addition, the flexibility of conditions is one of the advantages of repo transactions. Parties can choose a suitable term for them and agree on a price that will be acceptable for each of them.

For the buyer

For a party acting in the first stage as a buyer, the advantage is the possibility of using the acquired values for their own purposes, before the second stage. This process is sometimes called obtaining a loan in securities. Due to this advantage, REPO transactions with securities and other assets are so widespread in the exchange business.

In the event that the purpose of the operation is to issue a money loan - the buyer acts as a creditor. The fact that the values are transferred to his property, serves as insurance in the event of default by the borrower of its obligations.

For the seller

For a party that sells values at the first stage , the advantage is that it is possible to use the funds received at its discretion, before the second stage of the operation. Thanks to this advantage, procedures of this type have become an excellent alternative to classical lending.

If it is a question of granting a loan in securities, the seller will be a creditor. Transition of money resources in its order will serve as insurance in case of non-return of values by the buyer.