Management of Repo Transactions
A repurchase agreement (repo) is a contract between two parties whereby one party sells the other a security at a specified price with a commitment to buy the security back at a later date for another specified price.
Participants and eligible securities
- Transaction parties
Principles to repo transactions are banks, securities companies, asset management companies, insurance companies, pension funds, and foreign institutional investors.
- Inter-dealer broker
An inter-dealer broker acts as an intermediary facilitating transactions between repo buyers and sellers. Inter-dealer brokers are Korea Money Brokerage Corp., KIDB Money Brokerage Corp., Seoul Money Brokerage, and Korea Securities Finance Corp.
- Repurchase service provider
KSD deposits and manages purchased securities as a repurchase service company. Furthermore, KSD provides transaction management services such as rights management and mark-to-market.
- Eligible securities
Securities eligible for repo transactions are bonds, CP, ETF, and listed stocks, that can be deposited and marked-to-market.
Tri-party repo services
- Transaction management service
The details of repo transactions can be set by agreement between the trade counterparties, and various transaction conditions can be changed during the trade period.
- Risk management service
Margin calls can be made to adjust the size of the transaction in case of fluctuations in the collateral securities' value through evaluation and mark-to-market of collateral securities.
- Rights management service
When interest and rights arise from collateral securities, KSD pays the income to the seller. In case the buyer has sold the collateral securities, rights management service is provided to the seller through a substitute payment process.
Benefits of KSD's Tri-party Repo service
KSD provides an independent and fair settlement platform as a third party.
KSD offers a system environment which enables flexible changes to the form, conditions and details of transactions.
DVP system eliminates settlement risk, and risk management for fluctuations in the market value of underlying securities is achieved through the mark-to-market service.
Rights management service is provided when rights such as interest payments arise from collateral securities, and taxation processing is made easier since transaction records are available through the participant account book.