Repo documentation

The performance of repo depends on the buyer’s right to collateral. In order to minimize legal risks, it is prudent to have a written contract in the form of a master agreement. The standard for cross-border repo markets in Europe and elsewhere is the Global Master Repurchase Agreement (GMRA). Such documentation is also important for reinforcing a party’s netting rights in the event of default by a counterparty, and in setting out operational procedures such as margining and manufactured payments. The basic GMRA has been adapted to specialist uses and certain domestic markets through the use of annexes.

In an undocumented buy/sell-back, the rights and obligations of the parties in the event of a default by one of the parties are not clearly established. This is especially true of the right of the non-defaulting party to net obligations with a defaulting counterparty.

Global Master Repo Agreement

In the early days of the European repo market, counterparties drew up their own contracts, but disagreements prompted efforts to produce standard agreements, both for domestic and international repo transactions. The lead in the international market was taken by what is now the International Capital Markets Association (ICMA), through the committee that became the European Repo Council (ERC). In 1992, the ICMA published the first version of the GMRA. This was done in conjunction with the ICMA’s US counterpart, the Securities Industry and Financial Markets Association (SIFMA – formerly called the PSA and then TBMA), whose domestic Master Repurchase Agreement formed the basis of the first GMRA.