Repo is the market term for a ‘repurchase transaction’, which involves the sale of an asset by one party (the seller) to another party (the buyer) with a simultaneous agreement between the parties that the seller will repurchase the asset from the buyer at a future date for a specified price.
Any asset that is capable of being transferred from one person to another may be subject to repo. The most common types of asset that are repo’d are securities'>debt securities (bonds), equity securities (shares) and other financial assets such as loans and commodities. Commodity repos give rise to particular documentary, structural and legal issues which are not covered in this Practice Note. For information on commodity repos, see Practice Note: Commodity repo transactions and true sale considerations.
The principal payment and delivery obligations in a typical repo are set out in the diagram below:
The main features of repo therefore are:
the assets
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An agreement to sell securities, usually bonds, to another party and to buy them, usually after a few days, back at a specified date and price.
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