Collateral Management

CHAPTER 7Sale & Repurchase (Repo) Trades and Collateral – Repo Trade Variations

In addition to classic repo trades executed on a bilateral basis, a range of options exist as to 1) how repo trades can be executed, and/or 2) the method of administering the operational aspects of a repo trade following trade execution.

Within this chapter, the following options are described:

• Buy/Sell-Backs
• Tri-Party Repo
• Delivery by Value
• Repo Central Clearing
• GC Pooling, and
• RepoClear.

7.1 BUY/SELL BACKS (OVERVIEW)

Another form of repo (beside classic repo) are buy/sell backs (BSB) which may be documented (as per a classic repo) or undocumented. Undocumented BSBs are described in this part of the book.

Fundamental differences between classic repos and undocumented BSBs are that:

• classic repos:
  • are executed under the protection of the GMRA
  • are single trades comprising two legs, namely the opening leg and the closing leg
  • maintain a link between their opening leg and closing leg throughout the trade’s lifetime, and consequently the daily mark-to-market process gives rise to exposures and resultant margin calls,
• buy/sell backs:
  • comprise two legally independent trades in which the opening and closing legs, which are traded at the same time, are also treated operationally as two separate trades from the outset
  • has no link between the two legs and as a result the mark-to-market process and margin calls are not applicable.

The motivation for undertaking BSB trades is usually the same as for ...