Download Global Securities Finance Fixed Income Repo

Financial Markets – Global Securities Finance
Fixed Income Repo
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
Fixed Income Repo with ING
• Cheaper financing for asset holders relative to their cost of
funding
• Full service financing – ING offers financing for a broad range of
fixed income securities
• Leveraged investors can lend assets and reinvest the proceeds to
purchase additional assets
• Competitive pricing – As a top tier global financial institution with a
global reach, ING can offer competitive pricing in all time zones
• Exposure to the largest and most active sector of the money
markets.
• Rating – ING Bank NV has an A rating (S&P), ING Financial
Markets LLC has an A rating (S&P)
• Portfolio managers holding specific issues with value can
enhance their yield by lending those assets at a discounted rate
•Global platform – ING offers global access to Developed and
Emerging Repo Markets
• 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)
• Integrated securities finance platform - ING offers complementary
services for Equity securities, including Equity Derivatives
Trade Strategies
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.
• ‘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
Repo Rates are determined by dynamic market forces and may cash financing arrangements as a collateralized investment.
change as market conditions dictate.
 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 shortterm 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
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