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Collateral Management by Michael Simmons

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CHAPTER 5Sale & Repurchase (Repo) Trades and Collateral – The Repo Trade Lifecycle

INTRODUCTION

The Repo Trade Lifecycle is a series of logical and sequential steps which should be practised in order for a firm to process repo trades in a safe and secure fashion.

The following ‘roadmap’ diagram will be used to enable identification of 1) how far through the overall trade lifecycle a particular topic is, and 2) how many steps remain:

The diagram shows the Repo Trade Lifecycle. It consists of a series of logical and sequential steps which should be experienced in order for a firm to process repo trades in a safe and secure fashion. The steps are as follows:
Step 1: Pre-Trading
Step 2: Trade Execution.
Step 3: Pre-Settlement.
Step 4: Settlement of Opening Leg. 
Step 5: Throughout Lifetime of Trade.
Step 6: Settlement of Closing Leg.
Here, the diagram depict a repo trade in which Firm A is the cash borrower and the collateral giver, including calculations of cash values and bond quantities, and the actions necessary for settlement and exposure mitigation to occur in a timely fashion.

The following pages depict one repo trade in which Firm A is the cash borrower and the collateral giver, including calculations of cash values and bond quantities, and the actions necessary for settlement and exposure mitigation to occur in a timely fashion.

5.1 PRE-TRADING

 

The diagram shows the Repo Trade Lifecycle. It consists of a series of logical and sequential steps which should be experienced in order for a firm to process repo trades in a safe and secure fashion. The steps are as follows:
Step 1: Pre-Trading
Step 2: Trade Execution.
Step 3: Pre-Settlement.
Step 4: Settlement of Opening Leg. 
Step 5: Throughout Lifetime of Trade.
Step 6: Settlement of Closing Leg.
This stage of diagram depicts the Pre-Trading.

The following should ideally be in place prior to repo trade execution (viewed from the perspective of Firm A):

Legal Documentation

  • GMRA and applicable Annex signed by Firm A and its counterparty, Party G

Standing Settlement Instructions

  • SSIs are exchanged between Firm A and Party G

Static Data

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