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.

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.

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/az/view-file/repo-predmetinin-siyahisi-1.pdf