A retirement activity, also known as pension, PR or sale and retirement, is a form of short-term borrowing, mainly in government bonds. The trader sells the underlying security to investors and, after consultation between the two parties, resells it shortly thereafter, usually the next day, at a slightly higher price. For tax purposes, the processing of a repo depends on the terms of the contract. Most existing pension authorities treat deposits as secured loans. Among these powers, the repo seller is treated as the owner of the assets for the duration of the repo, and the repo buyer is treated as if he held the assets as collateral. However, these authorities may not apply to modern deposits on liquid and fungible assets. This is because, in existing authorities, the repo buyer generally did not have the right to sell or mortgage the assets, whereas in a modern repo the repo buyer often has the right to sell or mortgage. A reverse retirement transaction (CRR) is an act of buying securities with the aim of reselling the same assets at a profit in the future. This process is the opposite side of the medal in retirement.
For the party selling the security with the repurchase agreement, this is a buyback transaction. For the party who buys the security and agrees to resell it, this is a reverse repurchase agreement. Reverse Repo is the last stage of retirement that concludes the contract. Retreats are usually short-term transactions, often literally overnight. However, some contracts are open and do not have a fixed expiry date, but the reverse transaction is usually done within one year. A reverse repurchase agreement or « Reverse Repo » is the purchase of securities with the agreement to sell them at a higher price on a given future date. For the party who sells the security (and agrees to buy it back in the future), it is a retirement transaction (PR) or repo; For the party at the other end of the transaction (purchase of the security and acceptance of the sale in the future), this is a Reverse Repurchase Agreement (RRP) or reverse repo. Treasury or government bills, corporate and treasury/government bonds, and shares can all be used as « collateral » in a repo transaction.
However, unlike a secured loan, the right to securities passes from the seller to the buyer. Coupons (interest to be paid to the owner of the securities) due while the buyer in repo holds the securities are usually directly passed on to the seller in repo. This may seem counterintuitive, given that the legal ownership of the security rights during the pension contract belongs to the buyer. Instead, the agreement could provide that the buyer will receive the coupon, adjusting the cash to be paid during the redemption in order to compensate for this, although this is more typical of sales/redemptions. In a repo transaction, a trader sells securities to a counterparty with the agreement to buy them back later at a higher price. The trader raises short-term funds at an advantageous interest rate with low risk of loss. The transaction is concluded by a reverse repo. In other words, the counterparty resold them to the trader as agreed.
While a retirement transaction involves a sale of assets, it is treated as a loan for tax and accounting purposes. Repo is a form of secured loan. A basket of securities is the underlying collateral for the loan….