November 2011
Beginner
335 pages
9h 33m
English
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Bilateral Repo Trade
$100 Repo at 1 Percent Repo Rate and 2 Percent Haircut for 30 Days
The borrower sells $102 of securities to the cash lender and receives $100 in cash.
After 30 days, the borrower pays $100 plus 0.083 in interest to the cash lender to repurchase securities. This deal is arranged through a clearer. Step one is negotiation while step two informs the clearer of the trade so accounts can be credited and debited and transfers of cash and securities can occur. To factor,
$100 + (100 × 1 percent × (30/360))
this accounts for the Tri-party aspect.
At 8:30 the next morning, repo trades are unwound by the clearer bank to provide intraday credit to the borrower. The lender's account has $100 cash, the cash borrower has $102 in securities, ...
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