1. Repurchase Agreements and Other Reversible Transactions

2. 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

3. 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.

4. 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.

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

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