In this context, there are five key areas related to the banking sector, asset management, lending and repurchase agreements, securitisation and other shadow banking entities, in which the Commission is further exploring options and next steps. A repurchase agreement (also known as a repurchase agreement) is a financial transaction that combines the simultaneous sale and subsequent redemption of property (usually a security). This is a true buy-back agreement in which the seller`s ownership of the goods is transferred to the buyer for the duration. The repurchase agreement is a short-term financing instrument whose duration is generally between one day (then also called overnight repurchase agreement) and one year. OTC derivatives (ISDA and German framework agreement), e.B. Cross-currency and interest rate swaps, credit default swaps, options agreements, futures, loan and reverse repurchase agreements, including advice on insolvency law (para. B offsetting valuations) An EIA differs from buybacks/sales in a simple but clear way. Buy/sell agreements legally document each transaction separately and provide a clear separation in each transaction. In this way, each transaction can legally stand on its own, without the application of the others. RSOs, on the other hand, have legally documented each step of the agreement in the same contract and guarantee availability and entitlement at each stage of the agreement. Finally, in an MSRP, although the warranty is essentially purchased, security usually never changes the physical location or actual ownership.
If the seller is in default with the buyer, the warranty will have to be physically transferred. OTC derivatives (ISDA contract and German framework agreement), such as cross-currency and interest rate swaps, credit default swaps, options, futures, securities lending and repurchase agreements, including advice on insolvency law (e.B expert clearing opinions), securitisation and lending and repurchase agreements (repo). Reverse repurchase agreements (RSOs) are the end of a buyer`s repurchase agreement. These financial instruments are also called secured loans, buy/sell loans, and sell/buy back loans. A reverse repurchase agreement is the purchase of securities with the agreement to sell them at a higher price at a certain future time. Für die Partei, die das Wertpapier verkauft (und sich bereit erklärt, es in Zukunft zurückzukaufen), handelt es sich um einen Rückkaufvertrag (RP) oder ein Repo; Für die Partei am anderen Ende der Transaktion (Kauf des Wertpapiers und Zustimmung zum Verkauf in der Zukunft) handelt es sich um einen umgekehrten Rückkaufvertrag (UVP) oder ein umgekehrtes Repo. In a macroeconomic example of an RSO, the Federal Reserve Bank (Fed) uses repo and RSOs to ensure the stability of lending markets through open market operations (OMO). The RRP transaction is used less often than a repo by the Fed, because a repo puts money into the banking system when it is short, while an RSO borrows money from the system when there is too much liquidity. The Fed conducts RSOs to maintain monetary policy over the long term and to ensure capital liquidity levels in the market.
In the case of the repurchase of the bonds by the seller, the buyer receives the interest (reverse repurchase rate) on the loan granted by him, which relates exclusively to the identical purchase and sale price of the bond for the transfer period (the amount of which was the market value on the date of purchase minus the security discount called “discount”). The seller is entitled to the unitary interest in the obligation. Thus, the repo rate can be understood as a price for the provision of liquidity. The discount of the market value at the beginning of the transaction serves to protect against price decreases in the bond. If, in the case of a daily revaluation of the value of the bond, a price falling below the purchase price is detected, the buyer may claim the additional contribution; the seller may reimburse this by means of additional subsequent delivery of the deposit or cash settlement. Repo is classified as a money market instrument and is generally used to raise short-term capital. Today`s Green Paper sets out how existing and proposed EU measures already address shadow banking. The Green Paper published today sets out the extent to which the activities of shadow banks are already covered by existing and proposed EU legislation. In coordination with the FSB, the eu standard-setting bodies and competent supervisory and regulatory authorities, the Commission`s current work aims to carefully examine existing measures and propose an appropriate approach to ensure comprehensive supervision of shadow banking, as well as an appropriate regulatory framework. Like securities lending, the special collateral deposit focuses on the acquisition of a specific security. This will be specified accordingly in the text of the contract.
Motivations for repo operations include short-term liquidity, guaranteed investments, favorable lending rates and speculation on interest rates. The repurchase agreement is also called “real repurchase agreement” for the seller of the property and “false” or “reverse repo transaction” for the buyer, especially from an accounting perspective. Actual and reverse repurchase transactions are not subject to VAT as financing transactions. To differentiate it from sale and takeover operations, the International Capital Market Association (ICMA) has drawn up a draft contract. Securitizations (both actual sale and synthetic structures) Reverse repurchase agreements are often used by companies such as credit institutions or investors to lend short-term capital to other companies in the event of cash flow problems. Essentially, the lender buys a business asset, equipment, or even shares in the seller`s business and resells the asset at a fixed future price. The higher price represents the interest for the buyer to lend money to the seller for the duration of the business. The asset acquired by the buyer acts as collateral against any risk of default it faces on the part of the seller. Short-term RSOs carry lower collateral risks than long-term RSOs because, over the long term, assets held as collateral can often depreciate in value, resulting in collateral risk for the purchaser of the RSO. securitizations (actual sale securitizations and synthetic securitizations) The repurchase price is calculated from the purchase price plus the agreed interest (the associated interest rate is called the reverse repurchase rate), which depends on the quality of the security.
Interest is calculated p.a. (pro anno; per year) with 365 days. The purchase price to be paid at the beginning of the transaction is the market value of the underlying security (current price plus unit interest) less a security discount (“discount”). Until the financial crisis, the European Central Bank did not accept securities rated lower than A- (on behalf of Standard & Poor`s) for its repurchase agreements or refinancing operations with banks. As a result of the crisis, this criterion was relaxed. [2] Since then, investment grade rated securities (BBB- or Baa3 in the name of Moody`s) have been accepted, with lower ratings leading to progressively higher securities remittances. [3] In this context, there are five areas (banking, asset management, lending and repurchase agreements, securitisation and other shadow banking companies) in which the Commission examines possible options and measures to be taken. Repurchase agreements are part of the money market and are used by institutional investors, mainly banks, to obtain liquidity in interbank transactions and central banks in open market operations. .