1.2 Reverse Repo

This topic describes the reverse repo feature and the properties of reverse repo.

A reverse repo is a repo transaction from the lender's perspective. Therefore, for the lender of the cash, the repurchase agreement is known as the reverse repo. In this example, the bank B is entering into a reverse repo transaction as it is lending the cash.

Bank B	Repo	Reverse Repo
Participant	Borrower Seller Cash receiver Lender	Buyer Cash provider
Near leg	Sells securities	Buys securities
Far leg	Buys securities	Sells securities

Properties of Repo

• Details of the cash borrower, who is also providing securities
• Details of the cash lender, who is also taking the securities
• Nominal value to be borrowed
• Start date to borrow the cash
• Maturity date to return the cash and buy back the securities
• Haircut to be applied to the value of the security, including initial margin and collateral management details
• Repo rate is the interest rate that the borrower needs to pay to the seller for the use of cash