Short info about REPO transactions with corporate securities

A market for repo and reverse-repo transactions between the parties involving government and corporate bonds

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 BSE and clearing organization (National Depository Center). General Repo Agreement defines main conditions of repo transactions, rights, duties and responsibilities of the parties.

The subject of repo is the following investment securities traded at the Stock Exchange: a) government bonds and other government securities issued by the Ministry of Finance of the Republic of Azerbaijan; b) notes and other securities issued by the Central Bank of the Republic of Azerbaijan; c) Mortgage bonds; d) Government-guaranteed bonds; e) investment securities listed at the Stock Exchange in the Premium and Standard market segments or with an international rating of at least "B-" (according to the classification of Standard & Poor's and Fitch rating agencies or the equivalent of this rating by other rating agencies); f) Other investment securities provided by the market maker.

Banks are usually the parties to the repo transaction. A repo buyer is a participant in a repo transaction who acts as a buyer of securities during the repo opening transaction and as a seller of securities during the repo closing transaction. A repo seller is a participant in a repo transaction who acts as a seller of securities during the repo opening transaction and as a buyer of securities during the repo closing transaction.
The period between the date of the repo opening deal and the date of the repo closing deal is called the repo period. The duration of repo transactions is determined by the repo participants.
The profitability of a repo transaction or repo interest rate is formed from the difference between the price of the repo opening deal and the price of the repo closing deal.

Repo trading is carried out in accordance with the Stock Exchange's trading regulations. Repo orders can be in a form of limited order or market order depending on the type.

Short info about the REPO transactions of the Central Bank

Repo market – is the market where repo and reverse repo transactions are conducted with notes and government bonds between the Central Bank of the Republic of Azerbaijan and commercial banks. Repo market offers short term borrowing for market participants. Market participants meet their short term financial needs by conducting repo transactions among themselves.

As a rule, REPO/reverse repo transactions between the Central Bank and the authorized banks are conducted on BSE under General Repo Agreement. Short term notes of the Central Bank and government bonds act as repo subject.

  • REPO transaction – is a financial operation that establishes an obligation to sell the Central Bank securities to an authorized bank (REPO opening), as well as the sale of those securities by the authorized bank to the Central Bank and the repurchase of the securities by the Central Bank (REPO closing).
  • Reverse REPO transaction – is a financial operation that establishes an obligation for the authorized bank to sell securities to the Central Bank (REPO opening), as well as the obligation for the Central Bank to sell those securities to the authorized bank and the obligation for the authorized bank to repurchase the securities from the Central Bank (REPO closing).

The date of sale of the securities by the Central Bank to the authorized bank is the REPO opening date. The date of sale of the securities by the authorized bank to the Central Bank is the reverse REPO opening date.

The date of purchase of the securities by the Central Bank from the authorized bank is the REPO closing date. The date of purchase of the securities by the authorized bank from the Central Bank is the reverse REPO closing date.

Repo term is the time between Repo opening and closing dates. Repo term and repo interest rate is set by the Central Bank.

The Central Bank establishes annual interest rates of REPO/reverse-REPO transactions either freely or through the auctions. Profitability rate of Repo transactions 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.

https://www.bfb.az/en/view-file/repo-securities-and-haircut-ratio-81.pdf