Repo and Securities Financing

Current financial market difficulties have highlighted the essential role of collateralised financing in liquidity management, and will accelerate the established pre-crisis trend away from unsecured markets into repo and other secured financing. However, despite the huge size of the repo market (globally about USD15 trillion) and its growing importance, repo is not well or widely understood, even by its users.

The ICMA Centre is uniquely placed to provide up-to-date practitioner-oriented training on repo and related instruments such as securities lending, as well as collateral management, drawing on close links with the industry. Among other things, its faculty undertakes the authoritative semi-annual survey of the European repo market on behalf of the ICMA's European Repo Council, and provide the academic faculty for the ERC's annual Professional Repo Market Course, as well as repo seminars for SIFMA.

Courses are tailored to a client's specific needs, but a standard syllabus would draw on the following topics:

How repo works

  • mechanics
  • principal uses: financing long and covering short positions in securities
  • terminology
  • collateral management issues
  • valuation of collateral
  • initial margin/haircut
  • marking to market, margin maintenance, margin thresholds, minimum transfer amounts
  • substitution of collateral
  • custody (delivery, HIC, tri-party)

Key features:

  • legal title to collateral, comparison with pledging
  • economic benefit of collateral
  • treatment of collateral income
  • default risk on repo
  • capital charges
  • what repo can and cannot do
  • liquidity risk
  • accounting of repo

Specials and GC repo

  • general collateral
  • GC repo rate & spreads
  • specials

Repo structures:

  • repurchase agreements
  • buy/sell-backs
  • forward price of buy/sell-backs
  • floating rate repo
  • open repo
  • forward-start repo
  • synthetic repo
  • comparison with securities lending

Using repo with securities

  • valuing bond (forward break-even yield)
  • hedging forward bonds
  • financing spread trades
  • reverse-to-maturity
  • structured repo

Using repo with derivatives

  • warehousing swaps and bond options
  • fundamental pricing of swaps
  • spread trading against swaps
  • basis trading against bond futures

Triparty repo

  • origins
  • mechanics
  • functionalities
  • documentation
  • market size & structure
  • US v European v Swiss triparty
  • new developments: re-use and pooling

Short selling and specials

  • definition
  • why sell short?
  • covering failed trades
  • risks
  • what is a special?
  • exploiting specials
  • trading specials
  • matched-book trading
  • specialness and the borrowing fee
  • specials drivers
  • patterns of specialness

Fails

  • definition
  • causes
  • cost of failing
  • strategic and positive fails
  • legal remedies (mini close-out)
  • solutions

Credit repo

  • types of collateral
  • asset swaps
  • credit default swaps
  • the basis
  • basis trading against credit default swaps
  • risk management

Emerging market repo

  • what is emerging market repo?
  • special problems
  • risk management

Documentation

  • legal issues
  • review of key parts of the GMRA 1995 & 2000