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What is a Repurchase Agreement?
A repurchase agreement is a legal document, also known as a repo, RP or sale and repurchase agreement, that provides short-term borrowing in government securities between a dealer and an investor. The dealer sells underlying security to investors and buys them back shortly afterwards at a higher price by agreement between the parties involved.
Repurchase agreements are also known as a repo for the party selling the security and agreeing to repurchase it in the future, and as a reverse repurchase agreement for the party buying the security and agreeing to sell it in the future.
You can read more on repurchase agreement here.
Purpose of a Repurchase Agreement
Repurchase agreements are considered safe investments because the security functions as a collateral. In effect, repurchase agreements function like a short-term interest-bearing loan that has collateral-backing. This type of short-term lending allows both parties to meet their goal of secured funding as well as liquidity. While repurchase agreements are similar to collateral-backed loans, they are actual purchases. However, due to their short term and temporary ownership, they are treated as short term loans for tax and accounting purposes.
For traders, a repurchase agreement also provides a way to finance long positions, or a positive amount, in securities that are posed as collateral to obtain access to cheaper funding costs for long positions in other investments or to cover short positions, or a negative amount, in securities through a reverse repo and sale.
Repurchases can play a key role in facilitating cash and security flow in a financial system. They create opportunities for low risk investments of cash and management of liquidity and collateral by financial or non-financial firms. For instance, the federal reserve enters into repurchase agreements to regulate the supply of money and bank reserves. Individuals can also use repurchase agreements to finance debt-security purchase or make other investments.
There are a few disadvantages of a repurchase agreement:
- Risk of default : Repurchase agreements carry similar risks to any other security lending transaction. However, because of their short-term nature, they operate without much assessment of the financial strength of the parties involved and thus carry a risk of default.
- Risk of depreciation : Repurchase agreements carry the risk of depreciation of the value of the security before its maturity date. The lender can lose money on such transactions.
Here is more on reverse repo and sale.
How Repurchase Agreements Work
When a company needs to raise immediate cash without selling long-term securities, they can use a repurchase agreement. There are a few components of a repurchase agreement:
- Selling securities: The business offers certificates of deposit, stocks and bonds for sale to a financial institution with the promise to buy it back in the future at a higher price.
- Buying back the security : The financial institution that the securities are sold to cannot resell it to a third party under a repurchase agreement. Therefore, the business or individual must buy it back in time.
- Repo rate : The repo rate refers to the percentage paid to buy back securities. For instance, the business or individual might have to pay a 10% higher price at the repurchase time. One can think of this as interest.
- Margin payments : If the value of securities drops before you repurchase it, you will have to make margin payments to the entity holding your securities.
There are also two types of repurchase agreements: term and open repurchase agreements. Repos with a fixed maturity date are called term repurchase agreements whereas ones with no set maturity date are called open repurchase agreements.
- Term repurchase agreement : In a term repurchase agreement, the interest rate is fixed and is paid at maturity. The buyer can use the securities for the term and will earn an interest over the term.
- Open repurchase agreement : An open repo can be terminated by either party after giving a notice to the other before an agreed-upon daily deadline. If this notice is not provided, the repo rolls over to the next day automatically. The interest rate in an open repurchase agreement is close to the federal funds rate. It is often used to invest cash or assets when parties are unsure about the time needed to do so.
You can read more on components of a repurchase agreement.
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Examples of When You Use a Repurchase Agreement
Repurchase agreements are widely used by banks and financial institutions to regulate cash flow. Individuals can also use it for short term borrowing. Here are some examples of when repurchase agreements are used.
United States Federal Reserve:
Repurchase agreements are used by the US federal reserve in open market operations to crease reserves in the banking system and withdraw them after a certain time period. This is used to temporarily drain reserves and add them back later. It can be used to stabilize interest rates. The federal reserve uses it to adjust the federal funds rate to match the target rate. Through a repurchase agreement, the federal reserve buys securities from a dealer who agrees to buy them back. When the federal reserve is a transacting party, the repurchase agreement is called a system repo. When the federal reserve is trading on behalf of a foreign bank, it is called customer repo.
Reserve Bank of India:
The reserve bank of India uses repo and reverse repo to regulate money supply in the economy. The rate at which the reserve bank of India lends to commercial banks is called the repo rate. When there is an inflation, the RBI can increase the repo rate and reduce the supply of money in the economy.
Individuals:
Traders use repos to loan securities over a short term and buy them back at a higher price. Short-term loans through a repurchase agreement can provide a low-risk option for buyers or investors, rather than taking out a short-term loan from a bank.
You can read more on repurchase agreements and their uses.
Get Help with a Repurchase Agreement
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Meet some of our Repurchase Agreement Lawyers
Donya G.
I am a licensed and active NY Contracts Attorney, with over 20 years of diverse legal and business experience. I specialize in reviewing, drafting and negotiating commercial agreements. My practice focuses on working with small business clients as well as clients from international brokerage firms on acquisitions, especially in the Ecommerce space; drafting, negotiating, reviewing and advising on business agreements; ; breach of contract issues, contract disputes and arbitration. I am licensed to practice in New York and Connecticut, and am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. This entails reviewing, updating and drafting contracts such as employments agreements, asset purchase agreements, master services agreements, operating agreements and a variety of business and commercial contracts. Additionally, I assist clients with business strategies, contract disputes and arbitration. My diverse experience allows me to give my clients a well-rounded approach to the issues they face. I have been at top AML law firms; a Vice President at an Investment Bank, a Civil Court Arbitrator presiding over cases in contract law, commercial law, a Hearing Officer, presiding over cases and rendering written decisions, and a Judicial Clerk to a Civil Court Judge. It would be a privilege to assist you and your business with my services.
Daehoon P.
Advised startups and established corporations on a wide range of commercial and corporate matters, including VC funding, technology law, and M&A. Commercial and Corporate Matters • Advised companies on commercial and corporate matters and drafted corporate documents and commercial agreements—including but not limited to —Convertible Note, SAFE, Promissory Note, Terms and Conditions, SaaS Agreement, Employment Agreement, Contractor Agreement, Joint Venture Agreement, Stock Purchase Agreement, Asset Purchase Agreement, Shareholders Agreement, Partnership Agreement, Franchise Agreement, License Agreement, and Financing Agreement. • Drafted and revised internal regulations of joint venture companies (board of directors, employment, office organization, discretional duty, internal control, accounting, fund management, etc.) • Advised JVs on corporate structuring and other legal matters • Advised startups on VC funding Employment Matters • Drafted a wide range of employment agreements, including dental associate agreements, physician employment agreements, startup employment agreements, and executive employment agreements. • Advised clients on complex employment law matters and drafted employment agreements, dispute settlement agreements, and severance agreements. General Counsel • As outside general counsel, I advised startups on ICOs, securities law, business licenses, regulatory compliance, and other commercial and corporate matters. • Drafted or analyzed coin or token sale agreements for global ICOs. • Assisted clients with corporate formations, including filing incorporation documents and foreign corporation registrations, drafting operating and partnership agreements, and creating articles of incorporation and bylaws. Dispute Resolution • Conducted legal research, and document review, and drafted pleadings, motions, and other trial documents. • Advised the client on strategic approaches to discovery proceedings and settlement negotiation. • Advised clients on employment dispute settlements.
Samuel R.
My career interests are to practice Transactional Corporate Law, including Business Start Up, and Mergers and Acquisitions, as well as Real Estate Law, Estate Planning Law, Tax, and Intellectual Property Law. I am currently licensed in Arizona, Pennsylvania and Utah, after having moved to Phoenix from Philadelphia in September 2019. I am currently General Counsel for a bioengineering company. I handle everything from their Mergers & Acquisitions, Private Placement Memorandums, and Corporate Structures to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. Responsibilities include writing and executing agreements, drafting court pleadings, court appearances, mergers and acquisitions, transactional documents, managing outside expert legal counsel, legal research and anticipating unique legal issues that could impact the Company. Conducted an acquisition of an entire line of intellectual property from a competitor. In regards to other clients, I am primarily focused on transactional law for clients in a variety of industries including, but not limited to, real estate investment, property management, and e-commerce. Work is primarily centered around entity formation and corporate structure, corporate governance agreements, PPMs, opportunity zone tax incentives, employee retention credits, and all kinds of business to business agreements. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, mergers and acquisitions and also trademark registration and licensing.
Tina R.
15 years for legal experience; expertise in contracts, healthcare, ERISA, physicians, financial services, commercial contracts, employment agreements, etc. I am adept at all contracts and can provide you with efficient and quality services. I have worked at a law firm, financial services company, consulting ,and non-profit.
Craig Y.
Craig E. Yaris is a Managing Partner at Holon Law Partners, with the experience and drive to handle all your Franchise, General Business Practice, and Mediation needs. As a former small business owner and Chief Operating Officer of a franchisor himself, Mr. Yaris is passionate about promoting business growth. He has experience handling daily operations, employee disputes, and negotiations of pertinent contracts for a franchise company with 100 locations in five states, where he organized and conducted semi- annual meetings to educate and inform franchisees of best practices for improved growth. In addition, Mr. Yaris was responsible for the preparation and filing of the UFOC (Uniform Franchise Offering Circular) in several states and is well-versed in business formation. Between his time as Franchisor and Conflict Resolution Specialist, Mr. Yaris was the Co-Founder and Chief Operating Officer of an online company whose goal was to help inform marketers and business owners of the fast-paced and ongoing changes within their specific verticals. This experience helped him hone his research and writing skills and prepared him for the cloud-based aspects of Holon Law Partners. Mr. Yaris also has extensive experience in public speaking, as he has planned and delivered several keynote addresses and educational seminars for many New York-based organizations, and as a Continuing Education Instructor for Hofstra University. Prior to joining Parlatore Law Group, Mr. Yaris worked as a Patient Advocate, and more recently, a Conflict Resolution Specialist, where he mediated and resolved disputes on behalf of patients with insurance companies. In this role, he negotiated for coverage of previously denied medications and medical procedures as well as successfully mediated disputes between individuals and business partners which would have otherwise resulted in protracted litigation. In addition, he has experience mediating employer and employee disputes as well as helping resolve family conflict. He has also studied and attended many Non-Violent Communication (NVC) workshops and strives to bring these tools and methods to all of his mediations. His variety of experiences speak to his ability to handle small business needs at all stages of business growth and development. Mr. Yaris also has experience with business growth and development, as he has worked with several small business on creating and implementing strategies for steady growth. In addition, to spending time with family, Mr. Yaris volunteers his time helping spread the message of the ACLU and he supports many local charities focused on families and children. He is admitted to practice in New York.
February 7, 2022
Antoine D.
In his firm, Talented Tenth Law, Antoine focuses on helping people maximize their protection and prosperity in the courtroom and the boardroom. His firm’s services include representing people in lawsuits involving breach of contract, many types of civil lawsuits and helping business owners win government contracts among other things.
February 7, 2022
Tom L.
Tom is a former chief legal officer of public and private companies. He has extensive experience in mergers & acquisitions, commercial transactions, joint ventures, finance, securities laws and general corporate law across a broad range of industries, including construction, consumer products, e-commerce, energy and healthcare. As an attorney who practiced at two different Top 50 international law firms, he can deliver "Big Law" service at a competitive price. Prior to becoming a lawyer, Tom served as an officer in the U.S. Army and attained the rank of Captain. He served a tour in Iraq where he led a reconnaissance platoon and was awarded the Bronze Star Medal.
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a Automotive Dealer Agreement between BSL Funding and any prospective dealer wanting to send us Indirect loans
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Founder Share Repurchase and New Founder Stock Agreement Issuance
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