Repurchase Agreements and Other Reversible Transactions http://unstats.un.org/unsd/nationalaccount/AEG/papers/m3repurchaseAgreements.pdf

Repurchase agreement (or Repo) Example: Party A provides cash of 100 to Party B, Party B provides a bond worth 120 to Party A. Party A promises to return the bond to Party A one day later, Party B promises to return 100.01.

Repurchase agreement (or Repo) PROPOSAL - NO CHANGE IN BASIC TREATMENT, BUT SOME CLARIFICATION 1993 SNA treats this arrangement a collateralized loan. That is, B remains economic owner of security, it is only provided to A as security for the loan. (i.e., B retains economic ownership.) The one cent is interest on the loan. Other approaches – outright sale, four-entry. No consensus to change. Some people not fully happy with existing treatment, so leave on research agenda.

Repurchase agreement (or Repo) CLARIFICATION 1993 SNA assumed that Party A would not resell the bond. In fact, now they are often on-sold. (Change in economic circumstances.) If bond is on-sold by Party A to Party C, both Party B (original owner) and Party C think they are the owner of the bond – DOUBLE COUNTING. Solution – Party A should show a negative (“short”) position in its holdings.

Other Reversible Transactions May also exchange security for security (no loan): Securities lending. May exchange gold for money: Gold lending.

Questions Do participants support the collateralized loan approach to reverse transactions? 2. Do such transactions occur in your country?