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Securities Sale And Repurchase Agreements

16 Dec

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A contract with consideration for the sale and subsequent reuse of securities at a specified date and price. A situation in which the settlement of securities transactions takes place every day, the settlement of an individual transaction that takes place a certain number of days after the closing of the transaction. This goes against a situation where the settlement is only made on certain days – for example. B once a week or once a month – and where an individual transaction is settled the next day (or sometimes the next day, but a settlement day) after the day the agreement is reached. Happens when the market value of a security in a credit institution or securities credit transaction changes and the parties to the transaction agree to adjust the amount of securities or liquidity to the appropriate margin level in a transaction. Beginning in late 2008, the Fed and other regulators adopted new rules to address these and other concerns. One consequence of these rules was to increase pressure on banks to maintain their safest assets, such as Treasuries. They are encouraged not to borrow them through boarding agreements. According to Bloomberg, the impact of the regulation was significant: at the end of 2008, the estimated value of the world securities borrowed was nearly $4 trillion. But since then, that number has been close to $2 trillion. In addition, the Fed has increasingly entered into pension (or self-repurchase) agreements to compensate for temporary fluctuations in bank reserves.

Under a pension contract, the Federal Reserve (Fed) buys U.S. Treasury bonds, U.S. agency securities or mortgage-backed securities from a primary trader who agrees to buy them back within one to seven days; an inverted deposit is the opposite. This is how the Fed describes these transactions from the perspective of the counterparty and not from its own point of view. If the Federal Reserve is one of the acting parties, the PC is called a “system repository,” but if they act on behalf of a client (. B for example, a foreign central bank), it is called a “customer repository.” Until 2003, the Fed did not use the term “reverse repo” – which it said implied that it was borrowing money (against its charter), but instead used the term “matched sale.” The temporary transfer of securities or receivables is accompanied by a real transfer of ownership. When the Federal Reserve`s open market committee intervenes in open market transactions, pension transactions add reserves to the banking system and withdraw them after a specified period; Rest first reverses the flow reserves, then add them again. This instrument can also be used to stabilize interest rates and the Federal Reserve has used it to adjust the policy rate to the target rate. [16] From the seller`s point of view, we are talking about repo: sale followed by withdrawal, from the buyer`s point of view, we are talking about reverse repo: purchase followed by resale.

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