Sale and Repurchase Agreement (Repo)


A repo is the sale of a security (collateral) and the simultaneous agreement to repurchase the paper at a later point in time. Prerequisites are the conclusion of a master agreement for genuine sale and repurchase agreements as well as the granting of a repo line.

The following ownership structure guidelines are to be considered with a genuine repo transaction pursuant to ยง 340 HGB (German Commercial Code):
  • Legal ownership is transferred to the transferee (Repo buyer/lender)
    • In the event of default sale of security is immediately possible
  • Economic ownership remains with the transferor (Repo seller/borrower)
    • Return on the investment belongs to the transferor
    • Price change risk and credit risk remain with the Repo seller
Possible applications of repos include:
  • Instrument for liquidity management
  • Securities lending in the event of a short position
  • Yield optimization of the securities portfolio

 

Example:

Security (Collateral) DBR 3.25% January 2020
Dirty Price of the security EUR 101.88
Nominal EUR 10,000,000.00
Repo Rate 0.39%
Term 09.03. until 09.06.2010 = 92 Days
Actual amount of start transaction EUR 10,188,000.00
Actual amount of end transaction EUR 10,198,154.04
Repo Interest Actual amount x Repo Rate % x Term
EUR 10,188,000.00 x 0.39% x 92/360 = EUR 10,154.04

  • Start transaction
  • End Transaction