With a fully functioning repo market for Treasury bills and bonds, financial institutions or creditors holding these private debt will now have a guide on how to price their holdings by tacking on a risk or price premium on top of the government debt of comparable tenor.
The BTr also had to better manage its network of accredited repo dealers to make sure that two-way quotes were available for any market player who might want to buy or sell debt securities at any given time.
Also, again in support of the repo program, the Securities and Exchange Commission has granted provisional license to the Money Market Association of the Philippines as a self-regulatory organization of the repo market.
According to the BSP, "the establishment of an organized interdealer repo market will aid the development and deepening of the domestic financial market.
While Lehman is an extreme example of aggressive use of repos for balance sheet management, it is unlikely the 2014 accounting rule changes would have prevented its collapse or the broader financial crisis in September 2008.
The new accounting rules will make it more difficult for companies to repeat Lehman's aggressive accounting for repos.
In this backdrop, the objective of this paper is to empirically investigate, for the first time in a developing country context, the transmission of volatility in money market overnight repo
rate to short and long-term interest rates in the term structure.
RIR was created due to considerable interest from the Repo
are essentially a pair of separate but related transactions between two entities: an agreement to buy a security now (which constitutes the opening leg of the repo
), joined with an agreement to sell back the same security in the future at a specified price (the closing leg).
Often referred to as the bloodline and plumbing of the financial system, the tri-party repo
market motivated a number of policy interventions during the recent financial crisis after the potential for disruptions in the market threatened to interrupt funding flows.
Financial institutions that are in the business of taking positions on the direction of interest rates can use repos
to build up their inventory of securities through leverage.
buyer thus lends to the seller, with the difference between the immediate "spot" price of the obligation and the "forward" repurchase price representing the interest on the loan.
Data on haircuts for different types of repos
These net and gross leverage ratio swings were accomplished by how the repos
were accounted for on Lehman's financial records and reported on the balance sheet.
The next section describes what repos
and reverses are, describes the difference between on-the-run and older securities, and discusses the ways dealers use repos
to finance and hedge.