Repo transaction (sale and repurchase agreement)

Repurchase agreement in securities transactions – i.e. a sale with simultaneous forward repurchase -, usually relating to transactions between central banks and commercial banks. – The repurchase price comprises the purchase price and interest (agreement under which institutional investors or companies can exchange cash for securities for a fixed period of time. At the end of the contract, which can take various legal forms, the securities are returned to their initial owner. All title and rights to the securities are transferred to the buyer of the securities for the duration of the contract). – From an economic point of view, the repo transaction is regarded as a covered loan, although price fluctuations during the term lead to a regular margin call in the event of over- or under-covering of the loan. The purpose of repo transactions with the central bank is short-term liquidity management
(See financial market integration, European, money creation, money market segments, inter-quarter ballooning, repurchase agreements, liquidity-providing, pension rate, refinancing operations, longer-term, reverse repurchase agreements. – See in detail ECB Monthly Report of November 2002, pp. 61 ff, ECB Monthly Report of December 2009, pp. 26 ff (repo transactions during the financial crisis; overviews), Financial Stability Report 2009, p. 39 (link between leverage ratio and repo market), ECB Monthly Report of February 2010, pp. 71 ff (textbook explanation of transactions; euro repo markets during the financial crisis; many overviews), BaFin Annual Report 2012, pp. 54 ff. (supervisory measures), Deutsche Bundesbank Monthly Report of December 2013, p. 59 ff. (detailed explanation of repo transactions and their importance for the financial market; many overviews), ECB Monthly Report of January 2014, p. 75 ff. (on the ECB’s liquidity policy; many overviews), BaFin Annual Report 2013, p. 31 (on supervision and regulation).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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