As in many other corners of the financial world, buyout agreements include terminology that is not common elsewhere. One of the most common terms in the deposition area is « leg ». There are different types of legs: for example, the part of the transaction of the listing agreement in which the security is originally sold is sometimes referred to as the « starting stage », while the subsequent redemption is the « narrow part ». These terms are sometimes exchanged for « near leg » or « distant leg ». At the near moment of a repo transaction, the security is sold. Beginning in late 2008, the Fed and other regulators introduced new rules to address these and other concerns. The impact of these regulations has included increased pressure on banks to maintain their safest assets, such as treasuries. According to Bloomberg, the impact of regulation has been significant: at the end of 2008, the estimated value of global securities borrowed in this way was nearly $4 trillion. Since then, however, the number has increased closer to $2 trillion. In addition, the Fed has increasingly entered into marketing agreements (or reverse support agreements) to compensate for temporary fluctuations in bank reserves.
Securities are generally lent for a fee and securities lending operations are subject to different types of legal provisions than repo. An open repo agreement (also known as on-demand repo) works in the same way as a term deposit, except that the trader and the counterparty agree on the trade without setting the maturity date. On the contrary, the negotiation may be terminated by either party by notifying the other party before an agreed daily deadline. If an open deposit is not terminated, it is automatically renewed every day. Interest is paid monthly and the interest rate is regularly reassessed by mutual agreement. The interest rate on an open deposit is usually close to the federal funds rate. An open deposit is used to invest money or fund assets when the parties don`t know how long it will take them to do so. But almost all open agreements are concluded within one to two years.
Once the actual interest rate is calculated, a comparison of the interest rate with those of other types of financing will show whether the buyback agreement is a good deal or not. In general, offering agreements, as a guaranteed form of loan, offer better terms than cash credit agreements in the money market. .