Quick Answer
A repurchase agreement, or repo, combines a securities sale with an agreement to repurchase those securities. The corresponding resale trade reflects the related resale under the arrangement. Settlement requires recognizing the initial securities trade and the related repurchase or resale as connected obligations.
Some settlement arrangements contain more than one related transaction. A repo and its related resale must be considered together.
The Linked Transactions
- Repurchase agreement (repo): A securities sale coupled with an agreement to repurchase the securities.
- Resale trade: The corresponding transaction in which securities are resold under the arrangement.
- Repo and resale settlement: Requires recognition of both:
- The initial securities trade.
- The related repurchase or resale settlement.
Think of it this way: The initial sale does not tell the whole story. The agreement also creates the related repurchase or resale transaction, so operations must account for both connected settlement events.
Exam Tip: Gotchas
- A repo is not only a securities sale. The agreement to repurchase is part of the transaction, and the related resale settlement remains part of the operational picture.