Financial Markets – Global Securities Finance Fixed Income Repo 1 Repurchase agreements commonly referred to as ‘repos’, are contracts involving the simultaneous sale and future repurchase of an asset. The buyer in effect lends the seller money for the fixed period of the agreement, and the terms of the agreement are structured to compensate the buyer. The seller agrees to buy back the asset at the same price at which they sold it on the future repurchase date. This buy and sell represents a temporary transfer of legal ownership from seller to buyer. The entitlement of economical benefits of the asset remains with the seller or lender of securities. The seller pays the buyer interest on the implicit loan created by the transaction. Advantages of Repo • Cheaper financing for asset holders relative to their cost of funding • Leveraged investors can lend assets and reinvest the proceeds to purchase additional assets • Exposure to the largest and most active sector of the money markets. • Portfolio managers holding specific issues with value can enhance their yield by lending those assets at a discounted rate • Standard internationally accepted agreements, the Global Master Repurchase Agreement (GMRA), Master Repurchase Agreement (MRA), Global Master Securities Lending Agreement (GMSLA) and the Master Securities Loan Agreement (MSLA) Fixed Income Repo with ING • Full service financing – ING offers financing for a broad range of fixed income securities • Competitive pricing – As a top tier global financial institution with a global reach, ING can offer competitive pricing in all time zones • Rating – ING Bank NV has an A rating (S&P), ING Financial Markets LLC has an A rating (S&P) •Global platform – ING offers global access to Developed and Emerging Repo Markets • Integrated securities finance platform - ING offers complementary services for Equity securities, including Equity Derivatives Factors that Influence Rates • Federal Funds Rate: Most visible reflection of overnight market for money in the United States. Repo Rates will traditionally be a reflection of the Overnight Federal Funds Rate. • Federal Reserve Overnight RRP rate: The rate set by The Fed when conducting open market operation in which the Desk sells a security to an eligible RRP counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future. • EONIA–Euro Overnight Index Average: Most visible reflection of overnight market for money in the Euro zone. Repo Rates will move alongside EONIA based curves. Repo Rates are determined by dynamic market forces and may change as market conditions dictate. Trade Strategies • ‘Securities-driven’ market firms seek to gain temporary access to the repo market, transacting on specific securities either because they have failed to receive securities that they are due to make delivery on - they have deliberately sold a security short and are using the loan to deliver against this position - or they hold securities in high demand. The securities’ borrower will usually give collateral (other securities, cash, or bank letter of credit) to the lender Collateral mitigates the lender’s exposure to credit risk of the borrower Setting the repo rate at a lower level than current money market yields compensates the lender of securities • ‘Cash-driven’ institutions seek to borrow securities as collateral in cash financing arrangements as a collateralized investment. The cash lender is not seeking specific securities and will generally allow the cash borrower to select within defined categories of ‘general collateral’ Market participants use these transactions to finance their portfolios at rates generally below the inter-bank short- term uncollateralized lending rate, depending on the quality of the collateral Any margin is usually provided by the seller of the collateral, as the market exceeds the rate of the cash or securities loaned • “High grade” asset holders can enhance yield via a collateral switch transaction. The holder can exchange these assets for lower grade collateral plus a fee. Such transactions can be tailored to best fit risk appetite. Collateral switch transactions can be used to transform a portfolio customized to fit the desired current collateral needs or a modified short-term risk profile Trade Structures • Bilateral or Tri-party • Versus Payment or Free of Payment Settlement • Cash or Non-Cash Margin Collateral • Cross Currency • Multi Currency • Multi Tenor
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Do not put content in
the Brand Signature area
Do not put content in the Brand Signature area
Financial Markets – Global Securities Finance Fixed Income Repo
1
Repurchase agreements commonly referred to as ‘repos’, are contracts involving the simultaneous sale and future repurchase of an asset. The buyer in effect lends the seller money for the fixed period of the agreement, and the terms of the agreement are structured to compensate the buyer. The seller agrees to buy back the asset at the same price at which they sold it on the future repurchase date. This buy and sell represents a temporary transfer of legal ownership from seller to buyer. The entitlement of economical benefits of the asset remains with the seller or lender of securities. The seller pays the buyer interest on the implicit loan created by the transaction.
Advantages of Repo
• Cheaper financing for asset holders relative to their cost of funding
• Leveraged investors can lend assets and reinvest the proceeds to purchase additional assets
• Exposure to the largest and most active sector of the money markets.
• Portfolio managers holding specific issues with value can enhance their yield by lending those assets at a discounted rate
• Standard internationally accepted agreements, the Global Master Repurchase Agreement (GMRA), Master Repurchase Agreement (MRA), Global Master Securities Lending Agreement (GMSLA) and the Master Securities Loan Agreement (MSLA)
Fixed Income Repo with ING
• Full service financing – ING offers financing for a broad range of fixed income securities
• Competitive pricing – As a top tier global financial institution with a global reach, ING can offer competitive pricing in all time zones
• Rating – ING Bank NV has an A rating (S&P), ING Financial Markets LLC has an A rating (S&P)
•Global platform – ING offers global access to Developed and Emerging Repo Markets
• Integrated securities finance platform - ING offers complementary services for Equity securities, including Equity Derivatives
Factors that Influence Rates
• Federal Funds Rate: Most visible reflection of overnight market for money in the United States. Repo Rates will traditionally be a reflection of the Overnight Federal Funds Rate.
• Federal Reserve Overnight RRP rate: The rate set by The Fed when conducting open market operation in which the Desk sells a security to an eligible RRP counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future.
• EONIA–Euro Overnight Index Average: Most visible reflection of overnight market for money in the Euro zone. Repo Rates will move alongside EONIA based curves.
Repo Rates are determined by dynamic market forces and may change as market conditions dictate.
Trade Strategies • ‘Securities-driven’ market firms seek to gain temporary access to the repo market, transacting on specific securities either because they have failed to receive securities that they are due to make delivery on - they have deliberately sold a security short and are using the loan to deliver against this position - or they hold securities in high demand.
The securities’ borrower will usually give collateral (other securities, cash, or bank letter of credit) to the lender
Collateral mitigates the lender’s exposure to credit risk of the borrower
Setting the repo rate at a lower level than current money market yields compensates the lender of securities
• ‘Cash-driven’ institutions seek to borrow securities as collateral in cash financing arrangements as a collateralized investment.
The cash lender is not seeking specific securities and will generally allow the cash borrower to select within defined categories of ‘general collateral’
Market participants use these transactions to finance their portfolios at rates generally below the inter-bank short-term uncollateralized lending rate, depending on the quality of the collateral
Any margin is usually provided by the seller of the collateral, as the market exceeds the rate of the cash or securities loaned
• “High grade” asset holders can enhance yield via a collateral switch transaction. The holder can exchange these assets for lower grade collateral plus a fee. Such transactions can be tailored to best fit risk appetite.
Collateral switch transactions can be used to transform a portfolio customized to fit the desired current collateral needs or a modified short-term risk profile
Trade Structures • Bilateral or Tri-party • Versus Payment or Free of Payment Settlement • Cash or Non-Cash Margin Collateral • Cross Currency • Multi Currency • Multi Tenor
Related Documents
![Do not put content in the brand signature area 21/09/2015 14:59 [Enter reference here] Distribution of Lease Products - commercial strategies in direct.](https://static.cupdf.com/doc/110x72/56649e695503460f94b664ad/do-not-put-content-in-the-brand-signature-area-21092015-1459-enter-reference.jpg)
