A retirement operation is a short-term loan to quickly obtain cash. The bank rate is declared. While a retirement transaction involves a sale of assets, it is treated as a loan for tax and accounting purposes. Although the transaction is similar to a loan and its economic impact is similar to a credit, the terminology differs from that of credit: the seller legally buys the securities from the buyer at the end of the loan period. However, one of the essential aspects of rest is that they are legally recognised as a single transaction (significant in the event of the insolvency of the counterparty) and not as an assignment and redemption for tax purposes. By structuring the transaction as a sale, a repo offers lenders considerable protection against the normal operation of U.S. bankruptcy laws, such as. B automatic suspension and avoidance provisions. While conventional deposits are generally credit risk instruments, there are residual credit risks.

Although it is essentially a secured transaction, the seller can no longer redeem the securities sold on the maturity date. In other words, the repo seller is no longer in default in his commitment. Therefore, the buyer can keep the guarantee and liquidate the guarantee to recover the money loaned. However, the security may have lost its value since the beginning of the transaction, as the security is subject to market movements. In order to reduce this risk, deposits are often over-undersured and are subject to a daily market margin (i.e. if assets lose value, a margin call can be triggered to ask the borrower to publish additional securities). Conversely, when the value of the security increases, the borrower runs a credit risk, since the creditor is not allowed to resell them. If this is considered a risk, the borrower can negotiate a subsecured repo. [6] A reverse redemption is the other aspect of the transaction, with a party agreeing to buy securities and resell them later. The repo market is huge, with daily volumes about four times larger than the treasury market itself. There are mechanisms built into the buyback space to reduce this risk. For example, a lot of rest is over-guaranteed.

In many cases, if the collateral loses value, a margin call may take effect to ask the borrower to change the securities offered. In situations where it seems likely that the value of the security may increase and the creditor may not resell it to the borrower, the subsecure may be used to mitigate the risks. However, since the buyer has only temporary ownership of the collateral, these agreements are often treated as loans for tax and accounting purposes….