Repo Deals
A repurchase agreement (repo) is a form of short-term secured borrowing where one party sells securities to another with an agreement to repurchase them at a specified price on a future date. The difference between the sale price and repurchase price represents the implied interest (repo rate).
🔐 Key Characteristics
- Economically equivalent to a collateralised loan — the seller receives cash; the buyer holds securities as collateral.
- The seller is said to do a repo (borrowing cash); the buyer is doing a reverse repo (lending cash).
- Collateral commonly includes government securities and other assets permitted by the agreement and the institution's eligibility schedule.
- Haircut applied to collateral value to absorb price volatility risk.
- Short-term tenors: overnight to 3 months (term repos can extend to 1 year).
- Governed by Global Master Repurchase Agreement (GMRA) between counterparties.
🧾 Deal Types
| Deal Type | Party | Cash Flow | Securities Flow |
|---|---|---|---|
| Repo | Borrower (cash receiver) | Receives cash at start; repays at maturity | Delivers securities at start; receives back at maturity |
| Reverse Repo | Lender (cash provider) | Pays cash at start; receives back at maturity | Receives securities at start; returns at maturity |
| Open Repo | Either | No fixed maturity; rolled daily | Collateral returned on demand |
| Tri-Party Repo | Either | Via custodian intermediary | Custodian manages collateral selection and substitution |
🛠️ Operational Workflow
- Dealer agrees repo rate, term, collateral type, and haircut with counterparty
- Deal booked in TMS — both legs (start and end) captured
- GMRA confirmation sent to counterparty
- On start date: securities delivered via DVP (Delivery vs Payment) through MAS SGS system or Euroclear
- Cash leg settled via MEPS+ (SGD) or correspondent (USD)
- Daily margining: if collateral market value falls below threshold, margin call issued
- On maturity date: securities returned; cash principal + repo interest paid
- Deal closed in TMS; P&L accrual booked
🧮 Example Calculation
Scenario: SGD 50,000,000 repo for 14 days, using SGS bonds as collateral at 2% haircut, repo rate 3.10% p.a.
| Item | Calculation | Value |
|---|---|---|
| Collateral market value | — | SGD 51,020,408 |
| Haircut (2%) | SGD 51,020,408 × 2% | SGD 1,020,408 |
| Cash lent (after haircut) | SGD 51,020,408 − 1,020,408 | SGD 50,000,000 |
| Repo interest | 50,000,000 × 3.10% × 14/365 | SGD 59,452.05 |
| Repurchase price | 50,000,000 + 59,452.05 | SGD 50,059,452.05 |
📋 Compliance & Monitoring
- Repo counterparties must have the required legal documentation, commonly a GMRA, before trading
- Collateral eligibility and valuation checked under the agreement and approved collateral schedule
- Daily mark-to-market of collateral; margin calls issued if value drops below maintenance threshold
- Transactions reported where they fall within applicable MAS reporting requirements
- Concentration risk monitored against approved issuer, asset and wrong-way-risk limits
- Open repos reviewed daily — early termination option exercised if counterparty risk deteriorates
- LCR treatment depends on transaction tenor, counterparty, collateral, encumbrance and the institution's ability to monetise the asset