An Introduction to Repo Markets, 3rd Edition
This book is a practical introduction that focuses on the instruments, applications and risk management techniques essential for this rapidly evolving market. Fully updated to reflect the changes in these markets, the book also includes worked examples and case studies, and new sections on basket and structured finance repo.
Preface to First Edition.
About the author.
1. INTRODUCTION TO REPO.
Importance of repo.
The repo instrument.
Characteristics of repo.
Other repo products.
Hold in custody repo.
Borrow/Loan versus cash.
Bonds borrowed/collateral pledged.
Exotic repo structures.
2. MARKET BACKGROUND.
Discounting and present value.
Compounding more than once a year.
Internal rate of return.
Money market instruments.
Securities quoted on a yield basis.
Securities quoted on a discount basis.
Money market formulae.
Overview of bond market instruments.
Definition of a bond.
Fair pricing of bonds and bond yield.
The yield curve.
Theories of the yield curve.
Bond price/yield relationship.
3. THE MECHANICS OF REPO.
Uses and economic functions.
Covering short positions.
Other repo mechanics.
Repo dealing risks.
Financial market risks.
Dealing with risk.
4. BASKET REPO, SYNTHETIC REPO AND STRUCTURED FINANCE REPO.
Illustration of basket repo trade: Malaysian Government securities.
Illustration using structured finance securities.
Synthetic repo via the total return swap.
Structured funding vehicles: repo conduit.
Securities repo conduit.
5. THE UK GILT REPO MARKET.
Growth of market.
Gilt repo and other sterling money markets.
Impact on the gilt market.
Repo and stock lending.
Market participants: market making in repo.
Market participants: brokers.
Market participants: end-users.
Gilt repo and the yield curve.
Impact of the yield curve.
Hedging through repo.
Patterns of trading.
Gilts settlement and CREST.
CREST reference prices.
Delivery by value.
Gilt repo code of best practice.
6. OVERVIEW OF REPO TRADING AND THE FUTURES CONTRACT IMPLIED REPO RATE.
Positive yield curve environment.
Negative yield curve environment.
Yield curve arbitrage.
Other spread trades.
Matched book trading.
Forward rate agreements.
The implied repo rate and basis trading.
The cheapest-to-deliver bond.
The implied repo rate.
7. REPO AND THE YIELD CURVE.
Discount factors and the discount function.
Spot and forward rates: boot-strapping from the par yield curve.
Spot rates and boot-strapping.
Implied spot and forward rates.
The Relationship between par, zero and forward rates.
Exercises and calculations.
Forward rates: breakeven principle.
Forward rates and compounding.
Forward pricing and repo.
8. THE GLOBAL MASTER REPURCHASE AGREEMENT.
The Global Master Repurchase Agreement.
Master netting agreement.
Negotiation of the GMRA.
Failure to deliver.
Automatic early termination.
Product- and counterparty-specific amendments and additional annexes.
Gilt Repo Legal Agreement.
9. ACCOUNTING, TAX AND REGULATORY CAPITAL ISSUES IN REPO.
Accounting, tax and capital issues.
Capital Adequacy Directive.
CAD treatment for repo.
Balance sheet implications.
The Basel II Framework.
Basel II Framework.
Answers to exercises.
Case study: ABC Bank plc.
Appendix A: Duration.
Appendix B: Basis Trading and the CTD Bond.
Appendix C: Volatility.