Services

REPO Transaction: In Simple Terms

As previously mentioned, a REPO transaction, in economic terms, is a credit operation where securities are used as collateral

Key Parameters for REPO Transactions:

For a participant providing funds or securities in a REPO transaction, the financial result is the difference between the amounts of the first and second parts of the deal, which depends on the interest rate (expressed as an annual percentage) and the duration between the first and second parts (similar to a bank loan).

The party providing funds or securities assumes the risk of non-performance of the second part of the REPO deal by the other party if the market price of the securities significantly changes. Therefore, securities are usually taken as collateral at a price below the current market value on the day of the REPO deal. The difference between the price of one security in the first part of the REPO deal and the current market price is called the "price adjustment".

Advantages of REPO:

  • Higher yield compared to short-term bank deposits

  • Ability to place funds for short periods — from a week — unlike bank deposits

  • Collateral for providing funds can be in the form of government bonds (OVDP) or other reliable securities

  • No personal income tax on income from OVDP transactions

  • Technological efficiency — REPO transactions can be executed through the Exchange Trading System

  • The stock exchange ensures the "delivery versus payment" principle

  • After completing the first or second part of the transaction, both parties can immediately use the received asset to participate in exchange trading

If you have any questions regarding REPO transactions, please contact us, and our specialists will consult you.