Sale & Repurchase Agreements – Introduction
In this 2-part module, we describe the mechanics,
risks and pricing principles of sale and repurchase agreements, more commonly known as “repos”.
We examine classic repo transactions and their numerous permutations, review briefly the
standardized documentation for such transactions, explain how different market participants
take advantage of repos for different purposes, examine the accounting and regulatory treatment,
and comment on a recent fiasco involving accounting manipulation of repos. This module consists of 6 chapters, with Chapters
1, 2 and 3 appearing in Part 1, and Chapters 4, 5 and 6 appearing in Part 2.
In Part 1, Chapter 1 lays out the basic mechanics and pricing principles of repos and their
reverse transactions, known commonly as “reverse repos”.
Still in Part 1, Chapter 2 provides a brief overview of standardized documentation used
for repos and reverse repos. Still in Part 1, Chapter 3 describes a number
of applications of repo and reverse repo transactions, and how pricing is affected by particular
structures and motivations. In Part 2, Chapter 4 analyzes a variety of
permutations on the classic repo instrument, including so-called cross-currency repos,
sell-buyback transactions, total return swaps and securities lending transactions.
Chapter 5 provides a brief overview of the accounting and regulatory treatment of repo
transactions and discusses a recent fiasco relating to repos and the manipulation of
their accounting treatment. Chapter 6, finally, contains four quiz questions
to test your understanding of these materials.