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Repo (Securities)

Repo (Securities)

Short-term borrowing by pledging securities as collateral.

Overview of Repoisory

Overview of Repo

Borrow for the short-term by pledging securities to the lender as collateral. Securities will be returned to the borrower when the loan is repaid with interest at a future date.

Product types include repo, reverse repo, and cross-currency repo.

Documents required: 

  • GMRA 2000
  • GMRA 2011


Risks involved:

  • Collateral Risk
  • Interest Rate Risk
  • Collateral Credit Risk

Benefits

Access short-term funds with securities

Access short-term funds with securities

Lower cost of funding

Lower cost of funding

Collateralised for extra security

Collateralised for extra security

Balance sheet relief

Balance sheet relief

Quick Execution and Short Turnaround

Quick Execution and Short Turnaround

Flexible tenors for any liquidity needs

Flexible tenors for any liquidity needs

Repo and Reverse Repo

Rationale for Securities Lender (Cash Borrower)

Rationale for Securities Lender (Cash Borrower)

Entity borrowing cash and pledging security as collateral

  • Gain access to short-term funding at a favourable rate
  • Finance long securities position by pledging them out via Repos
  • Offset custody fees
  • Cost of funding is lowered, based on quality of collateral

Balance sheet treatment

Repo Transaction, Balance Sheet treatment under US GAAP
  • Repo Transaction
  • Description
  • Impact
Repo Transaction Description Impact
Cash Borrower
  • Securities remain on balance sheet
  • Corresponding increase in Cash (Asset) and Account Payables (Liability)
  • Difference between selling and repurchase price is booked as interest expense (Income statement)
 Balance sheet enlarged as both asset and liabilities increases.
Cash Lender
  • No impact on balance sheet
  • Decrease in Cash (Asset) with corresponding increase in Account Receivables (Asset)
  • Difference between selling and repurchase price is booked as interest income(Income statement)
 Balance sheet size remains unchanged. Asset item changed from Cash to Account Receivables.
Repo Transaction
Cash Borrower
Cash Lender

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Frequently asked questions

What securities can be used as repo collateral?
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Generally, among the Asian market participants, the widely used collaterals are sovereign credit (e.g. U.S. Treasuries and Agencies, European Sovereigns, Asian Sovereigns) and certain corporate bonds.

Additional information

Reverse Repo Illustration
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Reverse Repo Illustration

Reverse Repo Illustration

Structure schematics
  1. Inception, UOB is cash lender, Investor is cash borrower
  2. Maturity, UOB receives cash including interest, Investors gets Collateral returned. For longer term repos, interest paid may be quarterly or semi-annual

*Haircut will be the percentage of overcollateralisation required. Amount of haircut usually depends on the type of underlying collateral.

This is only an illustration, it does not constitute an offer or an invitation to offer or a solicitation or recommendation to enter into or conclude any transaction. Please contact UOB for more information.

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