Repo-Market Definition
The repo market involves a trade between a purchaser of a security and a seller of a security. The buyer offers cash to the seller and the seller offers securities as collateral. The two parties then agree to reverse the trade at an agreed-upon day at an agreed-upon rate. This is a contract trade. This transaction involves a spot sale for the security and forward contract on the repurchase date to lock in the agreed rate. Rates depend on the type of repo market, type of repo transaction, length of time for the trade, and whether the trade involved a third-party clearing agent or a bilateral deal. Tri-party repos are handled by a settlement company that manages trades for a fee.
The various legs of repo trades offer dealers ...
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