Chapter 1
The repo market is a vital element of the global capital and money markets. The first repo transactions were initiated by the US Federal Reserve in 1918, since which time repo has become the main instrument of open market operations for virtually all central banks around the world. It is also a major component of the global money markets. The market experienced substantial growth during the 1990s and is now estimated to account for up to 50% of daily settlement activity in non-US Government bonds world-wide; this is a phenomenal figure. Daily outstanding volume in international repo transactions has been estimated at between £440 billion to £450 billion; in the USD domestic market, daily deal volume is over $1,000 billion.
Repo, from ‘sale and repurchase agreement’, is closely linked to other segments of the debt and equity markets. From its use as a financing instrument for market makers to its use in the open market operations of central banks, and its place between the bond markets and the money markets, it integrates the various disparate elements of the marketplace and allows the raising of corporate finance across all sectors.
Repo is an interesting product because, although it is a money market product by dint of the term to maturity of repo trades, the nature of the underlying collateral means that repo dealers must be keenly aware of the assets that they ‘trade’ as well. The assets will be bonds, equity or other collateral of value. This ...

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