Bond Transactions With Repurchase Agreement

    Deposits were traditionally used as a form of secured loan and were treated as such for tax purposes. However, modern repurchase agreements often allow the cash lender to sell the security provided as collateral and replace an identical security at the time of redemption. [14] In this way, the cash lender acts as a borrower of securities and the repo contract can be used to take a short position in the security, much like a securities loan could be used. [15] In repo transactions, the financial institution to which you sell the securities cannot sell them to someone else unless you keep your promise to buy them back. This means that you must comply with your redemption obligation. If you don`t, it can hurt your credibility. It can also mean a missed opportunity if the stock had increased in value after your redemption. You can agree on the redemption price at the time of contract execution so that you can manage your cash flow in order to have funds for the transaction. . . .