Reverse repurchase agreement

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(Reverse repo, or RRP).

A form of secured investing/lending, seen from the perspective of the investor/lender, using an agreement to buy securities at the start of the contract, and to sell them back at a pre-agreed price at a fixed future date.

The investor/lender invests cash at the start (in exchange for the transfer of pre-agreed securities).

At maturity the investor/lender receives their cash back with interest and sells the securities back to the borrower.

A reverse repo is exactly the same transaction as a Repurchase agreement (repo) but from the perspective of the lender (rather than the perspective of the borrower).

It could logically have been called a “re-sale agreement”.

See also