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Repurchase Agreement (Repo)

A sale of securities with agreement to repurchase at a higher price. Economically a collateralized loan.

Liquidity & Collateral
Complexity
Basic
Deal Size
$50M - $5.0B
Typical Tenor
1-3 months
Scalability
Very High
#liquidity#secured-funding#collateral#short-term#repo
Mini Map

Flow Types

Cash
Securities
Interest

Transaction Timeline

Phase 1: Initiation(T+0)

Securities and cash exchange hands. Collateral is valued and haircut applied.

Use Cases

  • •Short-term funding and liquidity management
  • •Leverage financing for trading desks
  • •Central bank monetary policy operations
  • •Collateral transformation and upgrade
  • •Cash investment with secured return

Problem Solved

Converts securities into cash while maintaining economic exposure to the asset. Provides secured short-term funding at rates lower than unsecured borrowing.

Revenue Calculator

Model deal economics

$500M
$50M$5.0B
9 bps
5 bps200 bps
10 bps
0 bps

Projected Revenue

Gross Carry Income$225,000
Funding Cost($250,000)
Net Carry-$25,000
Upfront Fees$0
Total Revenue-$25,000
Annualized Return
-1.0 bps
If Repeated Annually
-$50,000

Revenue Sources

Carry Income

Repo Spread5-25 bps

Difference between repo rate earned and funding cost

At Maturity(Repo Rate - Funding Cost) × Principal × (Days / 360)
Haircut Economics2-5 bps

Return earned on the haircut amount retained

At MaturityHaircut Amount × Short-term Investment Rate × (Days / 360)

Fee Income

Custody Fee
0-5 bps

Fee for holding and safekeeping securities

Regulatory Checkpoints

Accounting TreatmentIFRS 9 / ASC 860

Must be booked as secured financing, not a true sale. Both parties keep economic interest.

⚠️ Critical for balance sheet derecognition

Margin RequirementsGMRA / Local Rules

Daily mark-to-market and margin calls required to manage collateral value fluctuations.

Risk Flags

Wrong-way RiskHigh

Collateral value may drop precisely when counterparty defaults (correlation risk)

Mitigation:Conservative haircuts, diversified collateral pools, daily margin calls
Liquidity SpiralHigh

In market stress, repo markets can freeze, causing funding gaps

Mitigation:Diversify funding sources, maintain backup liquidity facilities, stress testing
MisclassificationCritical

Booking as sale to manipulate leverage ratios is regulatory fraud

Mitigation:Clear accounting policies, independent audit, compliance review
Operational RiskMedium

Settlement failures, custody issues, or margin call disputes

Mitigation:Robust operational processes, automated margining systems