The full name for a Repo is “repurchase agreement”. It can also be called an RP or a sale and repurchase agreement. It involves the sale of securities together with an agreement for the seller to buy them back, usually for more than the original sale price.
In effect, a spot sale is taking place, combined with a forward contract. The spot sale means that money is transferred to the borrower in exchange for transferring the security to the lender. The forward contract ensures that the lender’s loan will be repaid and the collateral will be returned to the borrower. The price difference gives the lender a return on the money they have lent, similar to earning interest.
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.
- Buy-Sell Backs are actively traded through the JSE.
- Buy-Sell Backs are regulated as collateralised loans, but reported through the JSE as outright buy and sell transactions.
- All repo transactions are subject to bilateral credit arrangements between the two parties.
- The JSE does not provide any credit guarantees for these transactions.