The repurchase agreement (repo or PR) and the repurchase agreement (RRP) are two key instruments used by many large financial institutions, banks and some companies. These short-term agreements provide temporary lending opportunities that contribute to the financing of day-to-day operations. The Federal Reserve also uses the repo and auto-repo agreements as a method of controlling the money supply. Market participants often use pension transactions and funds to buy funds or use funds for short periods of time. However, transactions in which the central bank is not a party do not affect the total reserves of the banking system. There are a number of differences between the two structures. A repo is technically a single transaction, while a sale/buyout is a pair of transactions (a sale and a purchase). The sale/purchase does not require specific legal documents, whereas a repo usually requires a master`s agreement between the buyer and the seller (usually the Global Master Repo Agreement (GMRA) mandated by SIFMA/ICMA). For this reason, there is an increase in the risk associated with Repo. If the counterparty were to become insolvent, the absence of an agreement could reduce the legal position on appeal.

As a general rule, any coupon payment on the underlying warranty during the duration of the sale/buyback is returned to the purchaser of the guarantee by adjusting the cash paid at the end of the sale/purchase. In a repo, the coupon is immediately passed on to the security vendor. There is no deadline set for the end. Depending on the contract, the term is fixed until the next business day and the deposit is mature, unless a party extends it by a variable number of working days. Otherwise, it does not have a due date – but one or both parties have the option of completing the transaction within a set time frame. There is also a risk that the securities in question will depreciate before the due date, in which case the lender may lose money during the transaction. This time risk is the reason why the shortest buyback transactions have the most favourable returns. Pension agreements have a risk profile similar to all securities lending transactions.