A master repurchase agreement, also known as MRA, is a contract used in the financial industry for short-term borrowing. It is an agreement between two parties; usually, one party is a seller, and the other is a buyer.
Under an MRA, the seller agrees to sell a certain amount of securities to the buyer at a specific price, with the understanding that the seller will repurchase those securities at a later date (maturity date). This arrangement is commonly referred to as a “repo transaction.”
However, there are times when a seller needs to repurchase the securities before the maturity date. This is where a “mini close out” comes into play.
A mini close out is a term used to describe the process of repurchasing securities from an MRA before the maturity date. It is a small-scale version of a closeout, which is the process of settling an MRA when it reaches its maturity date.
A mini close out can be initiated by either party in an MRA. However, it is usually done by the seller to retrieve its securities before the maturity date. Although a mini close out can be done before the maturity date, it is subject to certain conditions.
Firstly, the seller has to provide prior notice to the buyer that they intend to execute a mini close out. This notice period is usually specified in the MRA agreement. Secondly, the seller has to pay the buyer a fee for terminating the MRA contract early. This fee is usually calculated based on the market value of the securities being repurchased.
A mini close out can be beneficial for sellers who need to retrieve their securities before the maturity date, for example, when the securities are needed for other transactions or when the seller needs liquidity. However, it can also be disadvantageous for the seller, as the fee for terminating the MRA contract early can be high.
In conclusion, a master repurchase agreement is an essential tool used in the financial industry. A mini close out is a process of repurchasing securities from an MRA before the maturity date. It is subject to certain conditions and fees, but it can be beneficial for sellers who need to retrieve their securities before the maturity date. As with any financial transaction, it is crucial to carefully read and understand the terms and conditions of an MRA before entering into the agreement.