A repurchase agreement (repo) is a short-term secured loan where one party sells securities to another and agrees to repurchase those securities later at a higher price. The securities serve as collateral. The difference between the securities’ initial price and their repurchase price is the interest paid on the loan, known as the repo rate.
Who is this for?
The Repo Market allows financial institutions, including banks and asset managers, to access affordable funding. It also allows parties with spare cash to earn a return on that cash without assuming much risk.
The Repo Market is also used by speculators who wish to short the bond market. These participants use the Repo Market to buy in the bonds for a period of time to facilitate their settlement obligations.
Who is this for?
Repo transactions are mostly conducted between banks, asset managers and corporate entities as a means to receive short term funding or enhance yield pick up on holdings.
The repo market is also used by speculators who wish to short the bond market. These participants would use the repo market to buy in the bonds for a period of time in order to facilitate settlement obligations.
Features
- The repo market is highly liquid.
- Repo transactions are regulated as collateralised loans but reported through the JSE as outright buy and sell transactions.
- Repo transactions are subject to bilateral credit arrangements between the two parties.
- The JSE does not provide any credit guarantees for these transactions.