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Description of An Introduction to the Repo Markets, 3rd Edition |
The Repo markets have grown dramatically in the past few years because of the need to hedge short positions in the capital and derivatives markets. Virtually all major currency markets in the world now have an established repo market, the facility is also increasingly being used in developing currency markets as well.
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.
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Contents of An Introduction to the Repo Markets, 3rd Edition |
Foreword
Preface
Preface to First Edition
About the author
1. INTRODUCTION TO REPO
Importance of repo
Market participants
The repo instrument
Characteristics of repo
Classic repo
Summary
The sell/buy-back
Stock lending
Other repo products
Tri-party repo
Hold in custody repo
Safe-keeping repo
Borrow/Loan versus cash
Bonds borrowed/collateral pledged
Cross-currency repo
Exotic repo structures
Selected references
2. MARKET BACKGROUND
Discounting and present value
Compounding
Discounting
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
Accrued interest
Accrual conventions
Selected references
3. THE MECHANICS OF REPO
Uses and economic functions
Funding positions
Covering short positions
Yield enhancement
Margin
Initial margin
Variation margin
Other repo mechanics
Repo dealing risks
Interdependent risks
Financial market risks
Dealing with risk
Selected reference
4. BASKET REPO, SYNTHETIC REPO AND STRUCTURED FINANCE REPO
Basket 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
Selected reference
5. THE UK GILT REPO MARKET
Introduction
Growth of market
Gilt repo and other sterling money markets
Impact on the gilt market
Market structure
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
Maturities
Specials
Gilts settlement and CREST
CREST settlement
CREST reference prices
Delivery by value
Gilt repo code of best practice
Selected references
6. OVERVIEW OF REPO TRADING AND THE FUTURES CONTRACT IMPLIED REPO RATE
Trading approaches
Positive yield curve environment
Negative yield curve environment
Yield curve arbitrage
Other spread trades
Specials trading
Credit intermediation
Matched book trading
Hedging tools
Futures strip
Forward rate agreements
Interest-rate swaps
The implied repo rate and basis trading
Contract definition
Conversion factors
The cheapest-to-deliver bond
The implied repo rate
Hedging implications
Selected references
7. REPO AND THE YIELD CURVE
Zero-coupon rates
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
Examples
Forward rates and compounding
Forward pricing and repo
Selected references
8. THE GLOBAL MASTER REPURCHASE AGREEMENT
TBMA/ICMA Agreement
The Global Master Repurchase Agreement
Scope
Structure
Key principles
Title transfer
Master netting agreement
Margin maintenance
Negotiation of the GMRA
Margin maintenance
Failure to deliver
Condition precedent
Set-off
Automatic early termination
Product- and counterparty-specific amendments and additional annexes
Gilt Repo Legal Agreement
Select references
9. ACCOUNTING, TAX AND REGULATORY CAPITAL ISSUES IN REPO
Accounting, tax and capital issues
Accounting
Taxation
Capital treatment
Capital Adequacy Directive
CAD treatment for repo
Balance sheet implications
The Basel II Framework
Basel II Framework
Exercises
Answers to exercises
Case study: ABC Bank plc
Glossary
Appendix A Duration
Appendix B Basis Trading and the CTD Bond
Appendix C Volatility
Abbreviations
Index
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About Moorad Choudhry |
Dr Moorad Choudhry is Head of Treasury at KBC Financial Products in London. He is a Visiting Professor at the Department of Economics, London Metropolitan University, a Visiting Research Fellow at the ICMA Centre, University of Reading, a Senior Fellow at the Centre for Mathematical Trading and Finance, Cass Business School, and a Fellow of the Securities and Investment Institute.
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