Repurchase agreement

(Repo).

1. A form of secured borrowing using a simultaneous agreement to:

(i) Sell securities at the start of the contract, and

(ii) Buy them back later at a pre-agreed (higher) price at a fixed future date.

The party buying securities at the start of the contract is the lender, paying away cash at the start. The lender enjoys repayment of their loan by receiving cash back from the borrower at maturity, in exchange for the transfer of the same securities back to the borrower.

In the event of the borrower's default, the lender gets the (defaulted) loaned money back by selling the securities elsewhere in the market.

2. Collateralised borrowing using securities as the collateral (without legal transfer of the securities).

See also

• Collateral
• Haircut
• Reverse repurchase agreement
• Security