Delivery vs. Payment (DVP) Repurchase (Repo) agreements are financial transactions that involve the sale of a security and the subsequent repurchase of the same security.
Repos are typically short-term transactions—usually overnight—but GSD will novate trades for up to two years. Repos enable brokers, dealers, banks, and other market participants to sell securities in order to obtain immediate funds for their own accounts or for the benefit of their clients. They likewise enable the buyers of the securities to earn short-term interest on their funds. In effect, the securities function as collateral for short-term loans.
FICC's Government Securities Division (GSD) matches, novates, and nets DVP Repo Transactions with other government securities trading activity, including buy/sell transactions and U.S. Treasury auction purchases due to settle on the next business day as part of its netting process. GSD also matches, novates, and settles Same-Day Settling (SDS) Trades.
As a secured form of financing, repos offer market participants more favorable terms than traditional money market cash lending transactions. Reverse repo agreements are used by institutions to earn income on their excess cash reserves. When the securities are sold, the sellers simultaneously agree to repurchase the securities on a specified day at a given price, including interest calculated using a rate agreed upon at the time the sale takes place. The portion of the repo transaction when the security is sold is referred to as the Start Leg, while the subsequent repurchase is called the End Leg. The borrower or collateral provider is called the Repo Party; the cash provider is called the Reverse Repo Party or lender.
A Direct Participant of GSD who participates in GSD’s Netting and Settlement Service can request to become a Repo Netting Member through GSD’s Repo Service. Access to both services is also available to Indirect Participants through GSD’s Indirect Access Models, the Agent Clearing Service (ACS), and the Sponsored Service.