Forward Starting Reverse Repurchase Agreements

In accordance with Section 402.2 of the GSA Rules, registered securities dealers or dealers must apply forward rest market risk allowances. As explained below, this treatment applies to both types of special security rights and generic types of advance repo security. All calculations and haircuts must be made from the date of negotiation. While 15C companies have the potential to take credit risk on the Forward Repos trading date, companies should not include credit risk haircuts for these transactions in their liquid capital calculations before the settlement date, unless companies provide their counterparties with funds (for example. B margin), securities or other inventories. Where a 15C entity provides funds, securities or other inventory to its counterparty prior to the settlement date, these items must be included in the credit risk discount provided for in subsection 402.2(g)(1). Are client shorts covered by external securities lending transactions subject to LCR40.79 (under «Secured loans, including reverse-repos and borrowing of external securities») or LCR40.46 («guaranteed financing outflows»)? Corporate shorts covered by external securities borrowings are clearly covered by LCR40.79 and it seems more logical that client shorts covered by external securities borrowings should also be covered. However, LCR40.46 concerns client underpants and the treatment is different. Repurchase transactions are financial transactions involving the sale of a security and the subsequent redemption of the same security. Hence the name «retirement» (or abbreviated repo). Outpost feedback transactions, including both reperent and reperent transactions that are settled for a longer period of time than on the same day, by crown-registered securities dealers or dealers (i.e.: 15C businesses) are subject to reductions in accordance with the Department of Finance`s capital rules. This interpretation relates only to the own funds requirements relating to retirement operations in the future of those undertakings.

This is an additional distinction between repo credits and secured loans; For most secured loans, bankrupt investors would be subject to automatic suspension. Other contractual exits are determined at 100% in accordance with LCR40.74 of the LCR framework, while other contractual flows are subject to national discretion in accordance with LCR40.93. Some industry members are concerned about the possible asymmetric treatment between the two items with respect to unexplained sales and purchases, as mentioned in FAQ1 RSCR40.74.