Repo vs Buy/Sell Back
Attributes of a buy/sell back:
- Same economic effect as a repo
- Same transfer of legal title
- Two separate contracts
- No right of substitution
- Any coupons paid are returned to the bond seller at the end date with interest
For a long time, buy/sell backs were mainly undocumented transactions with operational advantages over classic repos: they saved documentation cost, were simpler and cheaper. However, they were also a more risky trade as there were no established procedures in the event of default and they did not provide facilities such as margin maintenance. Because of these issues buy/sells can now be governed by a standard repo agreement - the GMRA.
Refer to the statistical breakdown of repo transactions into classic repo and buy/sell back.
