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Frequently Asked Questions on Repo
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(Updated December 2015)
Understanding repo and the repo market
1.
What is a repo?
2. How is repo used?
3. Why is the repo market so important and why has the use of repo grown so rapidly?
4. How big is the repo market?
5. Who are the main users of the repo market?
6. What types of asset are used as collateral in the repo market?
7. What are the typical maturities of repos?
8. What is the difference between a repurchase agreement and a sell/buy-back?
9. Is repo in Europe the same as repo in the US?
10. What is ‘rehypothecation’ of collateral?
11. What is general collateral (GC) repo?
12. What is a ‘special’ in the repo market?
13. What is an open repo?
14. What is the difference between repo and securities lending?
   
How repos are managed
15.
Is repo riskless?
16. Does repo encourage lending to risky counterparties?
17. Who regulates the repo market?
18. Why is it important to document repo?
19. What is the GMRA?
20. How do repo parties ensure they have enough collateral?
21. What is a haircut?
22. Who is entitled to receive coupon or dividend payments on a security being used as collateral in a repo?
23. Who can exercise the voting rights on corporate actions attached to equity and corporate bonds being used as collateral in a repo?
24. What is tri-party repo?
25. What happens if a party fails to deliver collateral in a repo?
26. What happens to repo transactions in a default?
27. What does a CCP do? What are the pros and cons?
   
Topical issues
28. What is ‘short selling’ and what is the role of repo?
29. Do repos allow for infinite leverage?
30. Do haircuts/margins exacerbate pro-cyclicality?
31. Do banks that lend through repo receive preferential treatment over other creditors?
32. Does repo ‘encumber’ a borrower’s assets?
33. Is repo a source of unstable short-term funding?
34. Was a ‘run on repo’ the cause of the financial crisis in 2007?
35. Is repo a type of ‘shadow banking’?
36. Is the repo market opaque?
37. Is repo used to remove assets from the balance sheet?
38. Could a repo rate benchmark replace LIBOR or EURIBOR?
39. Has the CSD Regulation changed the settlement date for repos in Europe?
40. What happens to repo transactions when interest rates go negative?
   
Special articles 
41. Mapping the interdealer European repo market
42. Repo: OTC or exchange-traded?
Frontclear, whose purpose is to facilitate more participative interbank markets, has commissioned a study to assess whether an exchange is likely to be more effect than an over-the counter (OTC) market in fostering the development of domestic repo trading in emerging financial markets, particularly  frontier markets. The study, carried out by Richard Comotto {insert link}the author of ICMA’s European Repo Survey, considers the arguments in favour of and against trading fixed income repo in OTC markets and exchanges, and reviews the evidence from four repo exchanges, Costa Rica, Kazakhstan, South Africa and Vietnam, with complimentary case studies from China, the Philippines, South Korea and European markets.
   
The FAQs above are provided for information purposes only and should not be relied upon as legal, financial or other professional advice. While the information contained herein is taken from sources believed to be reliable, ICMA does not represent or warrant that it is accurate or complete and neither ICMA nor its employees shall have any liability arising from or relating to the use of this publication or its contents, including any information contained on any third party website which may be referred to or accessed through any of the hyperlinks above.

ICMA ERC Guide to best practice in the European Repo Market