Repurchase Agreement (Repo), (RP)

A financing arrangement used primarily in the government securities markets whereby a dealer or other holder of government securities sells the securities to a lender and agrees to repurchase them at an agreed future date at an agreed price which will provide the lender with an extremely low risk return. Repos are popular because they can virtually eliminate credit problems, but a number of significant losses over the years suggests that lenders in this market have not always checked their collateralization closely enough. Most repo transactions are overnight, but term repos (over 30 days) are common. The repo market is enlarged and enhanced by its use in Federal Reserve Board open market operations in the United States. Repos operate slightly differently in other markets. See also Bed and Breakfast, Dollar Roll, Gensaki Rate, Pension Livrée, Réméré, Reverse Repurchase Agreement.

Glossary * R