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OVERVIEW

A Repurchase Agreement (Repo) is an agreement between two parties where one party sells a security at a specified price, with a commitment to buy the security back at a later date for another specified price. A Reverse Repurchase Agreement (Reverse Repo) refers to the opposite side of a Repo transaction. The party who sells and later repurchases a security is said to perform a Repo. The other party - who purchases and later resells the security - is said to perform a Reverse Repo.

While a Repo is legally the sale and subsequent repurchase of a security, it is essentially a secured loan. The party purchasing the security makes funds available to the seller and holds the security (or securities) as collateral. If the security used for the repo is entitled to income or principal payments during the Repo term they are returned to the original owner.

A dealer can borrow $10 million overnight from a corporate treasurer at an interest rate of 3 percent per annum by selling Treasury notes valued at $10,000,000 and simultaneously agreeing to repurchase the same notes the following day for $10,000,833. The payment from the initial sale is the principal amount of the loan, while the excess of the repurchase amount over the sale price ($833) is the interest on the loan. As with a collateralized loan, the corporate treasurer has possession of the dealer's securities and can sell them if the dealer defaults on its repurchase obligation.

In Eagle products, a Repo occurs when the Eagle entity loans money and holds collateral received from the borrower. A reverse repo occurs when the Eagle entity borrows money and provides collateral to the lender (pledges security). The collateral is not removed from the core Eagle entity, but can be pledged to restrict it from being sold.

This document covers the details of Data Management, Accounting, and Performance measurement for Repos & Reverse Repos.

Example reference data screens, trade screens, and reports are attached:

ENTITY SETUP

Entities trading Repos & Reverse Repos do not require any special setup.

REFERENCE DATA

Storage & Configuration

A Repo or Reverse Repo is modeled as a single row in Data Management using the Processing Security Type (3931, PST) of DBIBST (Interest Bearing Short Term).

There are legacy PSTs that may be visible from the front end, but are no longer used in Eagle Accounting: DBIBRP (REPO) and DBIBRR (Reverse REPO). These should not be used for Repo & Reverse Repo processing as they have been retired.

Market Data

Repos & Reverse Repos are generally fixed rate and valued at par value +/- accrued interest, resulting in very little associated market data.

  • If floating rate, rates must be loaded to the VARIABLE_RATE table for the underlying index of the Repo or Reverse Repo beginning on Dated Date (1183)
  • If variable rate, rates must be loaded to the VARIABLE_RATE table directly for the Repo or Reverse Repo beginning on Dated Date

Negative Interest Rates

Depressed economic conditions can lead to negative repo rates in some extreme cases. Eagle has core support for accruing on negative interest rates, including when a floating rate plus (minus) a spread goes negative.

Security Data

Repos & Reverse Repos can be setup and maintained in Issue Viewer, Security Reference Manager (SRM), or Reference Data Center (RDC). Other than basic identifier and country information, the following fields define Eagle’s recommended setup for Repos & Reverse.

The underlying security(ies) can be attached for reference and reporting purposes by using Add Underlying Security.

Security Reference

  • Processing Security Type (3931) = DBIBST (Interest Bearing Short Term)
    • Do not use DBIBRP (REPO) or DBIBRR (Reverse REPO), as these have been retired 
  • Price Multiplier (18) = 1.00
    • Will be priced at 1.00 to produce a market value equal to par value
  • Quantity Scale (19) = 1.00
  • Coupon (70): contractual interest/repo rate
  • Coupon Type (97): typically F (Fixed Rate), can be X (Floating Rate) or I (Variable Rate) if applicable
  • Payment Frequency (471): typically MAT (At Maturity)
  • Issue Price (69) = 1.00
  • Issue Date (68): start date
  • Dated Date (1183) = date when accruals begin, typically the same as Issue Date
  • First Coupon Date (473): typically Maturity Date
  • Last Coupon Date (474): typically Maturity Date
  • Maturity Date (38): end date when final cash payment is exchange
    • For open term Repos & Reverse Repos, choose a Maturity Date in the future beyond the date that it will be closed
  • Maturity Price (42) = 1.00
  • OID Indicator (218) = No

TRADE PROCESSING

Repo

Open

  • Repo positions can be established through the Book Trade module by entering an Open > Buy of the short-term security
    • Par Value/Current Face (40) = net amount of the cash being delivered/loaned
    • Price (45) = 1.00 (due to Price Multiplier = 1.00)
  • Allow the Repo to accrue on a daily basis, which will post as interest receivable

Close

  • Repos are typically held to maturity given their short lives, but if one is open term, it can be closed through the Book Trade module by entering a Close > Sell
    • Trade Date (35) & Settlement Date (37) = settlement date of final cash exchange
    • Par Value/Current Face (40) = net amount of the cash initially loaned
    • Price (45) = 1.00
    • Select Values to Be Calculated by STAR (7000) = Traded Interest
      • This will be added to Par Value/Current Face to generate the full cash exchange

Reverse Repo

Open

  • Reverse Repo positions can be established through the Book Trade module by entering an Open > ShortSell of the short-term security
    • Par Value/Current Face (40) = net amount of the cash being received/borrowed
    • Price (45) = 1.00 (due to Price Multiplier of 1.00)
  • Allow the Reverse Repo to accrue on a daily basis, which will post as interest payable
  • Pledging: to restrict the sale of the security or securities being posted as collateral, refer to Pledging & Restrictions for details

Close

  • Reverse Repos are typically held to maturity given their short lives, but if one is open term it can be closed through the Book Trade module by entering a Close > BuytoCover
    • Trade Date (35) & Settlement Date (37) = settlement date of final cash exchange
    • Par Value/Current Face (40) = net amount of the cash initially borrowed
    • Price (45) = 1.00
    • Select Values to Be Calculated by STAR (7000) = Traded Interest
      • This will be added to Par Value/Current Face to generate the full cash exchange
  • Pledging: release the security or securities posted as collateral if they were pledged

ACCOUNTING

Once a Repo or Reverse Repo trade is booked it will be picked up in Eagle’s global workflow. Daily accruals (whether positive, negative, or zero) and periodic coupons are generated as part of the earnings process, Accounting valuation is calculated when posting unrealized gain/loss, and Data Management valuation is calculated in the STAR to PACE push. These can be scheduled or triggered manually.

  • V17 & Above: Accounting Center > Processing and Exceptions > Global Processes

    • Accruals: Earnings > Run Income Accruals

    • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

    • Data Management Valuation: Eagle STAR to Eagle PACE Direct Processing > Transfer Data - Batch

  • Prior to V17: Global Process Center

    • Accruals: Earnings > Accrue

    • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

    • Data Management Valuation: STAR to PACE Direct Processing > Transfer Data - Batch

Valuation

Repos & Reverse Repos should be priced at 1.00 on a daily basis in order to produce a market value = par value and a market value income = par value +/- accrued interest.

The value of a Repo or Reverse Repo is calculated using the formulae below:

  • Market Value = Par Value * Quantity Scale * Price * Price Multiplier
  • Market Value Income = Market Value +/- Accrued Interest

Pledging: for Reverse Repos, positions pledged as collateral should continue to be marked to market, or in accordance with your legal accounting requirements and standards.

Mature

Repos & Reverse Repos will be picked up by Accounting’s core maturity process. This will also be scheduled in production environments, but can be triggered manually via Global Process Center > Expirations > Mature.

  • The final cash flows on Maturity Date depend on whether the position was held long (Repo) or short (Reverse Repo)
    • Long: receipt of par value + receipt of accrued interest
    • Short: disbursement of par value - disbursement of accrued interest
  • Pledging: for Reverse Repos, release the security or securities posted as collateral if they were pledged

REPORTING

STAR to PACE (S2P)

Almost all reports in Eagle leverage data from the Warehouse, which is populated by the S2P process. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.

The S2P process creates a single row for each Repo & Reverse Repo in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review Repo & Reverse Repo information. These are designed to support the daily operational workflow for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.

Data Management Reporting

General Reporting (Eagle OLAP)

OLAP reports provide the maximum level of customization, allowing any column in Data Management to be pulled into a report. These go beyond the Eagle Accounting Grid Reports because they are not limited by core queries, can support multiple sources and various types of calculations, and provide drill-down functionality based on user-defined groupings.

PERFORMANCE

The performance toolkit is preconfigured to calculate market value-based performance for Repos & Reverse Repos using data supplied by the S2P process. Performance calculations will appropriately reflect whether the position is long (Repo) or short (Reverse Repo). Risk analysis and performance attribution analysis features are available to analyze Repo & Reverse Repo performance.

AUTOMATION

Eagle supports loading Repo & Reverse Repo SMFs and trades through standard Message Center streams. The SMF must be loaded prior to the trade (trades will not automatically spawn SMF records). Refer to the Supported Generic Interfaces guide for more information.

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