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Some commentators have claimed that parties receiving collateral through repos have an unfair priority over other creditors, particularly unsecured creditors, in the event of a default by the collateral-giver. However, this perception is based on the legal form of collateralisation of US repo, where US Treasury and Agency securities can (if a court rejects the argument that title to collateral has been transferred) be given as collateral through a pledge which is exempt from the provisions of the Bankruptcy Code that normally apply to pledged collateral, in particular, the stay on the enforcement of rights to collateral in an insolvency. In Europe and elsewhere, the legal form of a repo involves purely the outright sale of legal title to collateral. The buyer in a repo therefore has exactly the same rights as someone who has purchased securities in an outright transaction. There is no preference. Unfortunately, some commentators and European regulators have assumed that the legal structure of all repo markets is identical to that of the US (see question 14).

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