Quick Answer
A repurchase agreement, or repo, combines a securities sale with an agreement to repurchase the securities. The resale side is the same arrangement from the counterparty's view. If a broker-dealer keeps custody and the counterparty is not excluded, it needs a written agreement, written confirmation, a protection notice, and possession or control.
How Do the Parties Describe the Same Arrangement?
| View | What it means |
|---|---|
| Repo side | The party sells securities and agrees to repurchase them. |
| Resale side | The counterparty views the agreed transaction as a resale under the same arrangement. |
What Must a Broker-Dealer Do When It Retains Custody?
When a broker-dealer retains custody of securities subject to a repurchase agreement, these safeguards apply unless the counterparty falls within an excluded class:
- Obtain the repurchase agreement in writing.
- Maintain possession or control of the securities subject to the agreement.
Exam Tip: Gotchas
Custody and counterparty status determine the safeguards. When the broker-dealer retains custody and the counterparty is not in an excluded class, the broker-dealer needs a written agreement, timely written confirmations, a protection notice, and possession or control.
What Should You Check on Exam Day?
- Identify the securities sale and the agreement to repurchase.
- Read the resale side as the counterparty’s view of the same arrangement.
- If the broker-dealer retains custody, first check whether the counterparty is in an excluded class. If not, check the written agreement, confirmations, protection notice, and possession or control.