Repo market provides market participants with the short term borrowing opportunity. Market participants cover their short term financial needs by signing repo contracts.
Repo transaction – sale (purchase) of investment securities with the obligation to repurchase (sell) those investment securities under pre-defined conditions.
Repo transactions are divided into repo opening and repo closing transactions:
- Repo opening transaction forms the first part of Repo transaction and is concluded in the buy-sell trade system of an exchange;
- Repo closing transaction forms the second part of Repo transaction and is concluded in the repurchase (sale) trade system of an exchange.
Repo transaction participants include the exchange members who have signed General Repo Agreement with the BSU and clearing organization (National Depository Center). General Repo Agreement defines main conditions of repo transactions, rights, duties and responsibilities of the parties.
Banks are usually the parties of Repo transactions. Repo buyer acts as a buyer of securities during the Repo opening transaction and as a seller during the Repo closing transaction. Whereas Repo seller acts as a seller of securities during the Repo opening transaction and acts as a buyer during the Repo closing transaction.
Underlying assets in corporate REPO transactions (repo subject) may include government securities, mortgage bonds issued by the Azerbaijani Mortgage Fund and corporate bonds that have been subjected to liquidity by a market maker on BSE.
Repo term is the time between Repo opening and closing dates. Repo term is set by Repo participants. Profitability of Repo transactions or Repo interest rate is the difference between the prices of repo opening and closing transactions.
Repo trade is carried out in line with the stock exchange regulations. Repo orders are classified into limited order and market order repos.
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