While a retirement transaction involves a sale of assets, it is treated as a loan for tax and accounting purposes. A Reverse Repurchase Agreement (Reverse Repo) is the mirror of a repo activity. In a reverse repo, a party buys securities and agrees to sell them later, often the next day, for a positive return. Most rests are overnight, although they may be longer. In a repo transaction, a trader sells securities to a counterparty with the agreement to buy them back later at a higher price. The trader raises short-term funds at an advantageous interest rate with low risk of loss. The transaction is concluded by a reverse repo. In other words, the counterparty resold them to the trader as agreed. Therefore, repurchase agreements and reverse-pension agreements are called secured loans, given that a group of securities – most often US Treasury bonds – insures the short-term credit agreement (as collateral for). Thus, in financial statements and balance sheets, pension agreements are generally recorded as credits in the debt or deficit column. Reverse pension arrangements (RRPs) are the end of a repurchase agreement.
These instruments are also called secured loans, buy/sell back loans and sell/buy back loans. From the buyer`s point of view, a reverse repo is simply the same pension activity, not that of the seller. Therefore, the seller who carries out the transaction would qualify it as a “repo”, while in the same transaction, the buyer would qualify it as a “reverse repo”. “Repo” and “Reverse Repo” are therefore exactly the same type of transaction that is only described from opposite angles. The term “reverse repo et sale” is generally used to describe the creation of a short position in a debt instrument in which the buyer immediately sells on the open market the assets provided by the seller. On the date of execution of the repo, the buyer acquires the corresponding title on the open market and delivers it to the seller. In the case of such a brief transaction, the buyer shall ensure that the security in question loses its value between the date of the repo and the date of settlement. .