Repo, Buy/Sell Back and Securities Lending Comparison
| Characteristics | Repo | Buy/Sell Back | Securities Lending | ||
|---|---|---|---|---|---|
| Specific securities (Special collateral) | General collateral | Cash collateral | Securities / other non-cash collateral | ||
| Formal method of exchange | Sale and repurchase under terms of agreement | Sale and repurchase under terms of agreement | Sale and repurchase | Sale with agreement to make subsequent reaquisition of equivalent securities | Sale with agreement to make subsequent reaquisition of equivalent securities |
| Form of exchange | Securities vs cash (often DVP) | Cash vs securities (often DVP) | Cash vs securities (often DVP) | Securities vs cash | Securities vs collateral (often free of payment but sometimes delivery vs delivery) |
| Collateral type | Cash | General collateral (bonds) or acceptable collateral as defined by buyer | Typically bonds | Cash | Securities (bonds and equities), Letters of Credit, DBVs, CDs |
| Return is paid to the supplier of | Cash | Cash | Cash | Cash collateral | Loan securities (not collateral securities) |
| Return payable as | Quoted as repo rate, paid as interest on the cash collateral (lower than GC repo rate) | Quoted as repo rate, paid as interest on the cash | Quoted as repo rate, paid through the price differential between sale price and repurchase price | Rebate interest (ie return paid on cash lower than comparable cash market interest rates) | Fee e.e. standard fees for FTSE 100 stocks are about 6 - 8 basis points |
| Initial Margin | Yes | Yes | Possible | Yes | Yes |
| Variation Margin | Yes | Yes | No (only possible through close out and re-pricing) | Yes | Yes |
| Over Collateralisation | No | Possible (if any, in favour of the cash provider) | Possible (if any, in favour of the cash provider) | Yes (in favour of the securities lender) | Yes (in favour of the securities lender) |
| Collateral Substitution | No | Yes (determined by the original seller) | No (only possible through close out and re-pricing) | Yes (determined by the borrower) | Yes (determined by the borrower) |
| Dividends and Coupons | Paid to the original lender | Paid to the original lender | No formal obligation to return income normally factored into the buy-back price | Manufactured to the original lender | Manufactured to the original lender |
| Legal Set off in event of default | Yes | Yes | No | Yes | Yes |
| Maturity | Open or term | Open or term | Term only | Open or term | Open or term |
| Typical asset type | Mainly bonds, equities possible | Mainly bonds, equities possible | Almost entirely bonds | Bonds and equities | Bonds and equities |
| Motivation | Security specific | Financing | Financing dominant | Security specific dominant | Security specific |
| Payment | At maturity | At maturity | At maturity | Monthly in arrears | Monthly in arrears |
Source: "An Introduction to Securities Lending" © Mark C. Faulkner
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