Global Master Repurchase Agreement (GMRA)
FINREP Financial Sector Development Project
Global Master Repurchase Agreement (GMRA) Presentation by Volodymyr Vysotskyi, Public Debt Expert, USAID FINREP Project Kyiv, 16 March 2011
FINREP Financial Sector Development Project
Lending Evolution Credit
Collateralized loan
Buy/Sell Back transaction
Classical repo
Repo agreement
FINREP Financial Sector Development Project
Comparison: Classical Repo Agreement vs. Buy/Sell Back Agreement Classical repo agreement
Buy/Sell Back Agreement
COMMON FEATURES ‐ guaranteed refund of funds ‐ sale of securities with simultaneous obligation to repurchase them ‐ haircut ‐ interest to owner for use of securities DIFFERENT FEATURES ‐ sell and buy back price the same ‐ fund creditor’s income is made up of the repo income ‐ early termination in the event of default ‐ coupon payments are immediately transferred to the seller ‐ master agreement (BMA/ISMA,GMRA) ‐ margin is maintained in case of a change in the assets market value ‐ special infrastructure is needed
‐ the buy back price is different ‐ fund creditor’s income is the difference between the sale price and the price of subsequent buy back ‐ no early termination ‐ coupon payments are immediately transferred to the seller (they are compensated for) ‐ none (GMRA may be used) ‐ no margin maintenance, although the buy back price may vary ‐ such trades may be executed using the existing securities trading infrastructure
2
FINREP Financial Sector Development Project
Jan05 Apr05 Jul05 Oct05 Jan06 Apr06 Jul06 Oct06 Jan07 Apr07 Jul07 Oct07 Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09
Increased repo use in crisis times
Share of repos in total bank funding 3
FINREP Financial Sector Development Project
Share, %
Share of repos in total UX trade volume in 2009‐2011
10.01.2009
01.01.2010
04.01.2010
07.01.2010
10.01.2010
01.01.2011
Share of repos in the total UX trade volume 4
FINREP Financial Sector Development Project
GMRA Structure 1. Applicability 2. Definitions 3. Initiation; Confirmation; Termination 4. Margin Maintenance 5. Income Payments 6. Payment and Transfer 7. Contractual Currency 8. Substitution 9. Representations 10. Events of default
5
FINREP Financial Sector Development Project
GMRA Structure (cont.) 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.
Tax Event Interest Single Agreement Notices and Other Communications Entire Agreement; Severability Non‐assignability; Termination Governing Law No Waivers, etc. Waiver of Immunity Recording Third Party Rights
6
FINREP Financial Sector Development Project
Key Terms: Sell/Buy Back Agreements
7
FINREP Financial Sector Development Project
Key Terms: Classical Repo
8
Price at yield higher than nominal 03.17.2011
02.17.2011
01.17.2011
12.17.2011
11.17.2011
10.17.2011
09.17.2011
08.17.2011
07.17.2011
06.17.2011
05.17.2011
04.17.2011
03.17.2011
FINREP
Financial Sector Development Project
Haircut Dependence on Maturity
Price at nominal yield
9
FINREP Financial Sector Development Project
Default Default: an event specified in the loan agreement, issue prospectus or repo agreement, the emergence of which gives the right to the creditor (non‐defaulting party) to demand early repayment of the outstanding loan extended or early redemption of bonds or all borrowed securities and cash margins be immediately returned or repaid under the repo agreement. Events of default: •the defaulting party fails to pay when due or deliver securities •fails to comply with the terms of the Agreement •occurrence of an act of insolvency •any representations made prove to be incorrect or untrue •expulsion from an exchange, appointment of a temporary administrator or revocation of a securities broker’s license 10
FINREP Financial Sector Development Project
Thank you!
11
FINREP Financial Sector Development Project
Contact information Please send you questions and comments at the following addresses: •Paul Roberti, senior advisor on public debt [email protected] •Volodymyr Vysotskyi, public debt expert [email protected] •Alina Chernomaz, public debt analyst [email protected]
Global Master Repurchase Agreement (GMRA) Presentation by Volodymyr Vysotskyi, Public Debt Expert, USAID FINREP Project Kyiv, 16 March 2011
FINREP Financial Sector Development Project
Lending Evolution Credit
Collateralized loan
Buy/Sell Back transaction
Classical repo
Repo agreement
FINREP Financial Sector Development Project
Comparison: Classical Repo Agreement vs. Buy/Sell Back Agreement Classical repo agreement
Buy/Sell Back Agreement
COMMON FEATURES ‐ guaranteed refund of funds ‐ sale of securities with simultaneous obligation to repurchase them ‐ haircut ‐ interest to owner for use of securities DIFFERENT FEATURES ‐ sell and buy back price the same ‐ fund creditor’s income is made up of the repo income ‐ early termination in the event of default ‐ coupon payments are immediately transferred to the seller ‐ master agreement (BMA/ISMA,GMRA) ‐ margin is maintained in case of a change in the assets market value ‐ special infrastructure is needed
‐ the buy back price is different ‐ fund creditor’s income is the difference between the sale price and the price of subsequent buy back ‐ no early termination ‐ coupon payments are immediately transferred to the seller (they are compensated for) ‐ none (GMRA may be used) ‐ no margin maintenance, although the buy back price may vary ‐ such trades may be executed using the existing securities trading infrastructure
2
FINREP Financial Sector Development Project
Jan05 Apr05 Jul05 Oct05 Jan06 Apr06 Jul06 Oct06 Jan07 Apr07 Jul07 Oct07 Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09
Increased repo use in crisis times
Share of repos in total bank funding 3
FINREP Financial Sector Development Project
Share, %
Share of repos in total UX trade volume in 2009‐2011
10.01.2009
01.01.2010
04.01.2010
07.01.2010
10.01.2010
01.01.2011
Share of repos in the total UX trade volume 4
FINREP Financial Sector Development Project
GMRA Structure 1. Applicability 2. Definitions 3. Initiation; Confirmation; Termination 4. Margin Maintenance 5. Income Payments 6. Payment and Transfer 7. Contractual Currency 8. Substitution 9. Representations 10. Events of default
5
FINREP Financial Sector Development Project
GMRA Structure (cont.) 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.
Tax Event Interest Single Agreement Notices and Other Communications Entire Agreement; Severability Non‐assignability; Termination Governing Law No Waivers, etc. Waiver of Immunity Recording Third Party Rights
6
FINREP Financial Sector Development Project
Key Terms: Sell/Buy Back Agreements
7
FINREP Financial Sector Development Project
Key Terms: Classical Repo
8
Price at yield higher than nominal 03.17.2011
02.17.2011
01.17.2011
12.17.2011
11.17.2011
10.17.2011
09.17.2011
08.17.2011
07.17.2011
06.17.2011
05.17.2011
04.17.2011
03.17.2011
FINREP
Financial Sector Development Project
Haircut Dependence on Maturity
Price at nominal yield
9
FINREP Financial Sector Development Project
Default Default: an event specified in the loan agreement, issue prospectus or repo agreement, the emergence of which gives the right to the creditor (non‐defaulting party) to demand early repayment of the outstanding loan extended or early redemption of bonds or all borrowed securities and cash margins be immediately returned or repaid under the repo agreement. Events of default: •the defaulting party fails to pay when due or deliver securities •fails to comply with the terms of the Agreement •occurrence of an act of insolvency •any representations made prove to be incorrect or untrue •expulsion from an exchange, appointment of a temporary administrator or revocation of a securities broker’s license 10
FINREP Financial Sector Development Project
Thank you!
11
FINREP Financial Sector Development Project
Contact information Please send you questions and comments at the following addresses: •Paul Roberti, senior advisor on public debt [email protected] •Volodymyr Vysotskyi, public debt expert [email protected] •Alina Chernomaz, public debt analyst [email protected]
