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There are important differences in the way that repo works in Europe compared with the US, and between the structure and operation of the two markets.  

In Europe, repo transfers legal title to collateral from the seller to the buyer by means of an outright sale (also known as a true sale). Under New York law (the predominant jurisdiction for US repo), transferring title to collateral has been considered legally difficult so title transfer is backstopped by the contingent pledging of collateral but with the pledge exempted from certain provisions of the US Bankruptcy Code that normally apply to pledges. In particular, collateral pledged in repo (as well as securities lending and against derivatives exposures) is exempt from the automatic stay on enforcement of collateral in the event of insolvency. In addition, unlike in traditional pledges, the pledgee/buyer in a US repo is given a contractual general right of use of collateral. Consequently, the resulting set of rights is deemed to be much the same in effect as those achieved by an outright sale.

In contrast to the European repo market, the US market is dominated by tri-party repo (see question 24), where post-trade collateral selection, management and settlement are outsourced to an agent. Tri-party repo may account for something in the order of two-thirds of the US market, whereas it is only around 10% of the European market.

The US repo market has traditionally had a shorter average maturity than the European market (see question 7) and repo has tended to account for a higher proportion of the balance sheets of key market intermediaries. On the other hand, the US market is a domestic market in one currency, whereas the European market is largely cross-border.


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