Classic repo examples

The Bank of England discourages sell/buybacks in gilt repo and it is unusual, if not unheard of, to observe them in this market. However, we use these terms of trade for comparison purposes with the classic repo example given in the previous section. The procedure and the terms of the trade would be identical in other markets such as Italy and Portugal where sell/buyback trades are the norm. In the Italian market for example, sell/buybacks are actually called repos. ... 

Market participants who are familiar with the Bloomberg trading system will use screen RRRA for a classic repo transaction. For this example the relevant screen entries are shown in Exhibit 10.5. This screen is used in conjunction with a specific stock, so in this case it would be called up by entering... 

If we wanted to use screen RRRA for other securities we would enter the relevant bond ticker, for example T for US Treasuries, B for German Bunds and so on. The principles are the same for classic repo trades whatever the jurisdiction, and the screen may be used for all markets that undertake classic repo. 

We illustrate a stock loan where the transaction is stock-driven. Let us assume that a securities house has a requirement to borrow a UK gilt, the 5.75% 2009, for a one-week period. This is the stock from our earlier classic repo and sell/buyback examples. We presume the requirement is to cover a short position in the stock, although there are other reasons why the securities house may wish to borrow the stock. The bond that it is offering as collateral is another gilt, the 6.50% Treasury 2003. The stock lender, who we may assume is an institutional investor such as a pension fund, but may as likely be another securities house or a bank, requires a margin of 5% as well as a fee of 20 basis points. The transaction is summarised in Exhibit 10.12. 

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