Repurchase agreement

A repurchase agreement (repo) is a form of short-term borrowing for dealers in securities market, which provides market participants with temporary lending opportunities to cover their financial needs. That is to say, the repo attracts funding in return for securities.

According to the Law of the Republic of Azerbaijan “On Securities Market”, the repo agreement was defined as the 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, while Repo closing transaction forms the second part of Repo transaction and is concluded in the repurchase (sale) trade system of an exchange. Repo term is the time between Repo opening and closing dates.

In Azerbaijan Repo transactions are carried out in accordance with stock exchange rules based on the Global Master Repurchase Agreement, which is signed between the Baku Stock Exchange and its members - investment companies, with the participation of the National Depository Center acting as a clearing organization.

Global Master Repurchase Agreement defines the main conditions of repo transactions, rights, duties and responsibilities of the parties.

As a rule, Central Bank REPO/reverse repo transactions are conducted on BSE under Global Master Repurchase Agreement. Short term notes of the Central Bank and government bonds and liquidity securities listed in the Global Master Repurchase Agreement act as repo subject. 

Repo term and the repo interest rate are set by investors. Profitability 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.