Master Repurchase Agreement Meaning

Repo operations are done in three forms: specified delivery, tri-party and retention (the “selling” party holding the guarantee for the duration of the repo). The third form (Hold-in-Custody) is quite rare, especially in development markets, especially because of the risk that the seller will become insolvent before the repo expires and the buyer will not be able to recover the securities that have been reserved as collateral for the transaction. The first form – the specified delivery – requires the delivery of a predefined loan at the beginning and expiry of the contract term. Tri-Party is essentially a form of shopping cart of the transaction and allows for a wider range of instruments in the basket or pool. In the case of a tri-party-repo transaction, an external clearing agent or bank between the “seller” and the buyer is invited. The third party retains control of the securities that are the subject of the contract and processes payments from the “seller” to the “buyer”. Despite regulatory changes over the past decade, systemic risks remain for the repo industry. The Fed continues to worry about a failure of a large repo distributor, which could stimulate a sale of fire under money market funds, which could then have a negative impact on the wider market. The future of the repo space may include continuous rules to limit the actions of these transactors, or even involve a transfer to a central clearing house system. However, for the time being, retirement operations remain an important means of facilitating short-term borrowing. A repurchase transaction may take the form of a global contract for the redemption of a TBMA/ISMA Master 2000, an “FBF Framework Agreement for Delivered Retirement Operations”, amended, supplemented or otherwise amended from time to time, or another agreement having a similar effect.

In 2008, attention was drawn to a form known as the Repo 105 after the collapse of Lehman, since it was alleged that the Repo 105s was being used as an accounting sleight of hand to conceal the deterioration in Lehman`s financial health. Another controversial form of buyback order is the “internal repo”, first known in 2005. In 2011, it was proposed that the rest periods used to finance risky trades in European government bonds may have been the mechanism by which MF Global put at risk several hundred million dollars of client money before its bankruptcy in October 2011.

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