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Repo Haircuts and Economic Capital: a Theory of Repo Pricing Wujiang Lou1 1St Draft February 2016; Updated June, 2020
Repo Haircuts and Economic Capital: A Theory of Repo Pricing Wujiang Lou1 1st draft February 2016; Updated June, 2020 Abstract A repurchase agreement lets investors borrow cash to buy securities. Financier only lends to securities’ market value after a haircut and charges interest. Repo pricing is characterized with its puzzling dual pricing measures: repo haircut and repo spread. This article develops a repo haircut model by designing haircuts to achieve high credit criteria, and identifies economic capital for repo’s default risk as the main driver of repo pricing. A simple repo spread formula is obtained that relates spread to haircuts negative linearly. An investor wishing to minimize all-in funding cost can settle at an optimal combination of haircut and repo rate. The model empirically reproduces repo haircut hikes concerning asset backed securities during the financial crisis. It explains tri-party and bilateral repo haircut differences, quantifies shortening tenor’s risk reduction effect, and sets a limit on excess liquidity intermediating dealers can extract between money market funds and hedge funds. Keywords: repo haircut model, repo pricing, repo spread, repo formula, repo pricing puzzle. JEL Classification: G23, G24, G33 A repurchase agreement (repo) is an everyday securities financing tool that lets investors borrow cash to fund the purchase or carry of securities by using the securities as collateral. In its typical transaction form, the borrower of cash or seller sells a security to the lender at an initial purchase price and agrees to purchase it back at a predetermined repurchase price on a future date. On the repo maturity date T, the lender (or the buyer) sells the security back to the borrower. -
Repurchase Agreements, Securities Lending, Gold Swaps and Gold Loans: an Update
SNA/M2.04/26 Repurchase agreements, securities lending, gold swaps and gold loans: An update Prepared by the IMF for the December 2004 Meeting of the Advisory Expert Group on National Accounts (For information) This paper is for the information of the members of the Advisory Expert Group (AEG), regarding the currently accepted treatment of repurchase agreements, securities lending without cash collateral1, gold loans, and gold swaps2. The paper also sets out areas where work is continuing by the IMF Committee on Balance of Payments (Committee) and on which the Committee will provide further reports in due course. Repurchase agreements and securities lending without cash collateral Background A securities repurchase agreement (repo) is an arrangement involving the sale of securities at a specified price with a commitment to repurchase the same or similar securities at a fixed price on a specified future date. Margin payments may also be made3. A repo viewed from the point of view of the cash provider is called a reverse repo. When the funds are repaid (along with an interest payment) the securities are returned to the “cash taker”4. The 1 The term securities (or stock or bond) lending is sometimes used to describe both types of reverse transactions described in this note. In order to distingush between those used involving the exchange of cash and those that do not involve the exchange of cash, this note uses the term “repurchase agreements” for those involving cash and “securities lending without cash collateral” for those not involving the exchange of cash. 2 A fuller description of repurchase agreements, securities lending, gold loans and gold swaps can be found at http://www.imf.org/external/pubs/ft/bop/2001/01-16.pdf 3 “Margin” represents the value of the securities delivered that is in excess of the cash provided. -
Introduction and Overview of 40 Act Liquid Alternative Funds
Introduction and Overview of 40 Act Liquid Alternative Funds July 2013 Citi Prime Finance Introduction and Overview of 40 Act Liquid Alternative Funds I. Introduction 5 II. Overview of Alternative Open-End Mutual Funds 6 Single-Manager Mutual Funds 6 Multi-Alternative Mutual Funds 8 Managed Futures Mutual Funds 9 III. Overview of Alternative Closed-End Funds 11 Alternative Exchange-Traded Funds 11 Continuously Offered Interval or Tender Offer Funds 12 Business Development Companies 13 Unit Investment Trusts 14 IV. Requirements for 40 Act Liquid Alternative Funds 15 Registration and Regulatory Filings 15 Key Service Providers 16 V. Marketing and Distributing 40 Act Liquid Alternative Funds 17 Mutual Fund Share Classes 17 Distribution Channels 19 Marketing Strategy 20 Conclusion 22 Introduction and Overview of 40 Act Liquid Alternative Funds | 3 Section I: Introduction and Overview of 40 Act Liquid Alternative Funds This document is an introduction to ’40 Act funds for hedge fund managers exploring the possibilities available within the publically offered funds market in the United States. The document is not a comprehensive manual for the public funds market; instead, it is a primer for the purpose of introducing the different fund products and some of their high-level requirements. This document does not seek to provide any legal advice. We do not intend to provide any opinion in this document that could be considered legal advice by our team. We would advise all firms looking at these products to engage with a qualified law firm or outside general counsel to review the detailed implications of moving into the public markets and engaging with United States regulators of those markets. -
NCUA IRPS 85-2 -- Repurchase Agreements of Depository Institutions with Securities Dealers and Others 11/85
NCUA IRPS 85-2 -- Repurchase Agreements of Depository Institutions with Securities Dealers and Others 11/85 NCUA-IR - 85-2 REPURCHASE AGREEMENTS 11/85 NATIONAL CREDIT UNION ADMINISTRATION Repurchase Agreements of Depository Institutions with Securities Dealers and Others Interpretive Ruling and Policy Statement Number 85-2 AGENCY: National Credit Union Administration (NCUA) ACTION: Interpretive Ruling and Policy Statement Number 85-2. SUMMARY: The NCUA Board has adopted as its statement of general policy for Federal credit unions the Federal Financial Institutions Examination Council ("FFIEC") Supervisory Policy entitled "Repurchase Agreements of Depository Institutions with Securities Dealers and Others." EFFECTIVE DATE: November 14, 1985. FOR FURTHER INFORMATION CONTACT: Donald W. Sorrels, Office of Examination and Insurance, or Steven R. Bisker, Assistant General Counsel, NCUA, 1776 G Street, N.W., Washington, D.C. 20456, or telephone (202) 357-1065 (Mr. Sorrels) or (202) 357-1030 (Mr. Bisker). SUPPLEMENTARY INFORMATION: On October 21, 1985, the FFIEC approved a recommendation to each of the participating Federal financial institution regulatory agencies to adopt its Supervisory Policy entitled "Repurchase Agreements of Depository Institutions with Securities Dealers and Others." The NCUA Board, at its November 14, 1985, meeting, adopted the Supervisory Policy as its general policy for Federal credit unions. For the most part, the Supervisory Policy elaborates on what is already required of FCU's under NCUA's Rules and Regulations, Part 703 -- Investment and Deposit Activities. The Supervisory Policy sets out guidelines which are recognized to be safe and sound practices when engaging in repurchase and reverse repurchase transactions. FCU's involved in these transactions should follow the guidelines. -
ANNUAL REPORT June 30, 2021
JOB TITLE SA FUNDS AR REVISION 8 SERIAL <12345678> TIME Friday, August 27, 2021 JOB NUMBER 393837-1 TYPE PAGE NO. I ANNUAL REPORT June 30, 2021 PORTFOLIOS OF INVESTMENTS SA U.S. Fixed Income Fund SA Global Fixed Income Fund SA U.S. Core Market Fund SA U.S. Value Fund SA U.S. Small Company Fund SA International Value Fund SA International Small Company Fund SA Emerging Markets Value Fund SA Real Estate Securities Fund SA Worldwide Moderate Growth Fund Beginning on January 1, 2022, as permitted by regulations adopted by the Securities and Exchange Commission, we intend to no longer mail paper copies of each Fund’s shareholder reports, unless you specifically request paper copies of the reports from the SA Funds - Investment Trust (the “Trust”) or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Trust’s website (http://www.sa-funds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to continue to receive paper copies of all future reports free of charge. If you invest through a financial intermediary, you may contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Trust, you may inform the Trust that you wish to continue receiving paper copies of your shareholder reports by contacting us at (844) 366-0905. -
New Trends in Repurchase Agreements Frequently Asked Questions
New Trends in Repurchase Agreements Frequently Asked Questions Q&A | February 2020 The market for repurchase agreements (repos) made headlines in September 2019 after an unexpected spike in overnight rates sparked Federal Reserve (Fed) intervention. Repos are a critical part of the plumbing of the short- term investment markets, but may be less familiar to public funds investors. For many, the impact of the repo market is felt through investments in money market funds and local government investment pools (LGIPs). In an effort to provide better insight into the repo market, and to answer some of the more frequently asked questions regarding this topic, we conducted the following Q&A session with Jeffrey Rowe, CFA, Managing Director and Senior Portfolio Manager with oversight of 16 PFM-managed LGIPs and Chris Blackwood, Managing Director and Administrator of Colorado Statewide Investment Pool (CSIP), a PFM-managed LGIP. What is a repurchase agreement? How are repos used by investors? Blackwood: Although the mechanics differ, a repo is Blackwood: Many repo users are entities with large similar to a collateralized loan. A repo is a funding tool amounts of cash to invest, such as money market used by large financial institutions, such as commercial funds, LGIPs and corporations. Repos are attractive banks, insurance companies and investment banks. because they are typically transacted with high credit Many of these institutions have assets, such as quality counterparties and are typically collateralized Treasuries and agencies, they want to own long term, at a minimum of 102% of the amount invested. Thus, but they also have short-term funding needs. -
The Investment Lawyer Covering Legal and Regulatory Issues of Asset Management
The Investment Lawyer Covering Legal and Regulatory Issues of Asset Management VOL. 23, NO. 5 • MAY 2016 Considerations for Investment Managers Considering Acquiring Portfolios of Online or Marketplace Loans By Edward T. Dartley and Anthony R. G. Nolan arketplace and online lending has a small operational expenses associated with traditional but growing share of the US and global bank loans to consumers, such as the cost of main- Mlending market. Online loans to consumers taining and staffi ng physical branches. Cost reduc- and small businesses represent a growing asset class tion, in turn, makes relatively minor loans to small for investment managers seeking non-correlated businesses and individuals economically feasible for high returns in a low-yield environment. all parties involved. Online lending marketplace Th is article will provide an overview of impor- platforms use proprietary algorithms and models to tant considerations for investment advisers and assign a risk grade to the proposed borrowers and investment fund managers seeking to understand set an interest rate corresponding to the assigned how marketplace loans as an asset class can fi t into risk grade and the tenor of the loan. an investment strategy and which issues must be Marketplace lending (or online lending) is classi- considered when investing in marketplace loans, cally regarded as the process of connecting borrowers including regulatory compliance and disclosure and lenders without using banks. Th e classic concept risks. is being stretched as the online lending industry con- tinues to evolve and mature. One example of this Overview of the Online and development can be seen in the evolution of fund- Marketplace Lending Industry ing sources. -
Bank Collective Trust Funds – “What You Need to Know”
Bank Collective Trust Funds – “What You Need To Know” San Francisco – September 10, 2008 Michael S. Caccese Mark D. Perlow Donald W. Smith William P. Wade Boston and Webinar – September 17, 2008 Michael S. Caccese Sean P. Mahoney Donald W. Smith William P. Wade New York – September 18, 2008 Edward G. Eisert Rebecca H. Laird Donald W. Smith William P. Wade Contents PowerPoint Presentation Tab 1 Bank Collective Trust Funds What You Need to Know Tab 2 Collective Investment Funds of Banks and Trust Companies BANK COLLECTIVE TRUST FUNDS: WHAT YOU NEED TO KNOW September 2008 Agenda Part I Overview Part II Basic Elements Part III Outsourcing Part IV Operational Matters Part V Questions & Answers 2 1 Part I: Overview The Current Environment An Inside Look at Collective Trusts Documents Structures Regulation 3 Terminology and Distinctions Collective Investment Fund generic term Collective Trust Fund Participants are limited to employee benefit trusts Bank may act in any capacity for participating trusts Common Trust Fund Participants typically but not always are personal or other non-employee benefit trusts Bank must be trustee of each participating trust 4 2 Trends Popularity Change 5 Trend: Popularity Why? Cost Flexibility Comfort Factor 6 3 Trend: Change Evolution Wide Usage in Financial Services Industry Adaptation of Other Fund Structures and Practices 7 What is a Collective Trust Fund? A common law trust Established by an institutional trustee To invest assets of employee benefit trusts . a trust of trusts. 8 4 Anatomy of a Collective Trust Fund: Basic Documents Organizational Document (e.g., declaration of trust) Fund Document (e.g., supplemental or fund declaration) Access Document (e.g., trust agreement, adoption or participation agreement, etc. -
The Treatment of Mortgage Loan Repurchase Agreements in Chapter 11 Bankruptcy
March 2008 / Issue 5 A legal update from Dechert’s Finance and Real Estate Group In this issue p1 Mortgage Loan Repurchase Agreements The Treatment of Mortgage Loan Repurchase p2 Safe Harbor and Agreements in Chapter 11 Bankruptcy Related Bankruptcy Code Provisions In a recent case of first impression, a bankruptcy then re-purchase such loans from the repo buyer in p3 Factual Background of the Case court held that a contract for, among other things, exchange for the transfer of funds from the repo the sale and repurchase of mortgage loans was a seller to the repo buyer. p4 The Bankruptcy “repurchase agreement” as defined in Section Court’s Analysis and 101(47) of the Bankruptcy Code, and the amended The repo buyer’s re-transfer of the mortgage loans Holding “safe harbor” provisions of Sections 555 and 559 or the interests in mortgage loans to the repo seller p5 Significance of the of the Bankruptcy Code were applicable; however, should occur no later than one year after the initial Decision the safe harbor provisions did not apply to the transfer2 in exchange for the transfer of funds from servicing rights for the mortgage loans. the repo seller. The re-purchase price paid by the repo seller would consist of the original purchase In Calyon New York Branch v. American Home price paid to the repo seller plus a premium to Mortgage Corp. (In re American Home Mortgage, compensate the repo buyer for both the time value Inc.),1 the U.S. Bankruptcy Court for the District of of its money and the risk associated with the Delaware recently held that a contract providing transaction. -
Coalition of Collective Investment Trusts White Paper
Collective Investment Trusts Prepared by the Coalition of Collective Investment Trusts Table of Contents Overview ....................................................................................................................................................... 2 Collective Investment Trusts Defined ....................................................................................................... 3 Two Broad Types of Collective Trusts ....................................................................................................... 3 Investment Strategies – Short Term Investment Funds……………………………………………………………………………4 The Investment Option Selection Process .................................................................................................... 5 The Evolution of CITs ..................................................................................................................................... 6 Features of CITs ........................................................................................................................................... 10 Governing Documents ............................................................................................................................ 10 Regulatory Oversight of CITs ................................................................................................................... 11 Federal and State Banking Laws ......................................................................................................... 11 DOL ..................................................................................................................................................... -
Comment Letter on File No. S7-22-06
1120 Connecticut Avenue, NW Washington, DC 20036 202-663-5326 Fax: 202-828-5047 www.aba.com Sarah A. Miller General Counsel September 8, 2008 Florence E. Harmon Jennifer J. Johnson Acting Secretary Secretary Securities and Exchange Commission Board of Governors of the 100 F Street, N.E. Federal Reserve System Washington, D.C. 20549-1090 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Re: Status of Bank Repurchase and Reverse Repurchase Agreement Activities Involving Non-Exempt Securities under the Securities Exchange Act of 1934, SEC Release Nos. 34-56501 and 34-56502; Regulation R; Docket No. R-1274 Ladies and Gentlemen: The ABA Securities Association (“ABASA”)1 appreciates the opportunity to submit this letter in response to the request by the Securities and Exchange Commission (“SEC”) and the Board of Governors of the Federal Reserve System (the “Board”) (hereinafter referred collectively to as the “Agencies”) for information on the nature and extent of bank repurchase and reverse repurchase (“repo”) agreement activities involving non-exempt securities. The Agencies’ request for information was made in the context of their joint adoption of Regulation R, which implements the so-called “push- out” provisions under Section 3(a)(4) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended by the Gramm-Leach-Bliley Act (“GLBA”).2 We have provided responses to the Agencies’ specific requests for information in the attached annex. ABASA urges the Agencies to clarify 1 ABASA is a separately chartered affiliate of the American Bankers Association (“ABA”) representing those holding company members of the ABA actively engaged in capital markets, investment banking, and broker-dealer activities. -
Utilizing Repurchase Facilities and Related Protected Contracts As an Alternative Source for Fund Liquidity
Utilizing Repurchase Facilities and Related Protected Contracts as an Alternative Source for Fund Liquidity By Todd N. Bundrant, Susannah L. Schmid, Eric M. Reilly, and Monique J. Mulcare 1 to capital commitments of investors to I. Introduction determine loan availability), Repurchase Subscription-backed credit facilities (also Facilities look “down” to assets beneath the known as “capital call” or “capital Fund level. Repurchase Facilities can also commitment” facilities, and each a be used effectively in tandem with “Subscription Facility”) have served as the Subscription Facilities. cornerstone of the fund finance market for the Repurchase Facilities are often used to provide past 20 years. Loan availability under a temporary financing of an asset until an exit Subscription Facility is subject to a borrowing strategy (like pooling into a securitization) can base, which is typically tied to the remaining be pursued. In addition to Repurchase amount of the pledged uncalled capital Facilities, there are other tools available to commitments of investors satisfying certain Funds for purposes of obtaining liquidity from eligibility requirements, multiplied by an portfolio assets, including “note on note” advance rate. However, in connection with the financings (whereby a lender provides an ongoing evolution of the fund finance market, advance against a loan asset and in turn takes we have seen a growing interest among real an assignment of the underlying loan estate and other private credit funds (each, a documentation as collateral for repayment) “Fund”) for additional fund financing tools to and “CLO light” structures (whereby a lender leverage the value of their portfolio assets and provides a temporary warehouse line of credit optimize investment returns.