Repurchase Agreement How It Works

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Instead, the agreement could provide that the buyer will receive the coupon, adjusting the cash to be paid during the redemption in order to compensate for this, although this is more typical of sales/redemptions. From the buyer`s point of view, a reverse repo is simply the same pension activity, not that of the seller. Therefore, the seller who carries out the transaction would qualify it as a “repo”, while in the same transaction, the buyer would qualify it as a “reverse repo”. “Repo” and “Reverse Repo” are therefore exactly the same type of transaction that is only described from opposite angles. The term “reverse repo et sale” is generally used to describe the creation of a short position in a debt instrument in which the buyer immediately sells on the open market the assets provided by the seller. On the date of execution of the repo, the buyer acquires the corresponding title on the open market and delivers it to the seller.

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