Collateral Repurchase Agreements

On the other hand, this transaction also presents a risk for the borrower; if the value of the security exceeds the agreed terms, the creditor may not resell the security. Generally speaking, credit risk for real transactions depends on many factors, including the terms of the transaction, the liquidity of the security, the specificities of the counterparties involved and much more. (2) Lack of effective plans to liquidate collateral in the event of a trader`s delay While the purpose of the repo is to borrow money, technically it is not a loan: ownership of the securities in question actually comes and goes between the parties involved. However, these are very short-term transactions with a guarantee of redemption. In addition to the use of repo as a financial instrument, “repo distributors make markets”. These traders were traditionally called “matched book repo-traders”.