Practical steps to investing in Repos - ACT briefing note (Updated May 2014) | The Association of Corporate Treasurers

Practical steps to investing in Repos - ACT briefing note (Updated May 2014)

In May 2014 the ACT updated and republished the Practical Steps to Investing in Repos briefing note. Updates include choosing collateral, haircuts, income paid on collateral and re-use or re-hypothecation of collateral.

Repos are typically used by banks and building societies to borrow money on a short term basis in the absence of unsecured money market funding which has almost dried up post global financial crisis. Non-financial companies, on the other hand, continue to conserve their cash given current uncertainties and face the challenge of diversifying their investment portfolio from a list of financial counterparties with dwindling credit ratings. Even though repos provide additional protection to the investor through ownership of collateral, they are not widely used by non-financial companies.

The ACT believes one reason may be the lack of practical knowledge that exists in the market so the operational processes remain mysterious to the treasurer and CFO. This repo briefing note aims to fill some of this gap with a high level comparison of repos against five short term liquid investment products, a comparison of the key characteristics of tri-party and bilateral repos, steps that need to be taken before investing in repos, and an overview of transaction flows.

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