An Introduction to Repo Markets E-Book

Moorad Choudhry

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Securities and Investment Institute
• Sprache: Englisch

Seitenzahl: 258

Veröffentlichungsjahr: 2011

Beschreibung

The Repo markets have grown dramatically in the past few years because of the need to hedge short positions in the capital and derivatives markets. Virtually all major currency markets in the world now have an established repo market, the facility is also increasingly being used in developing currency markets as well. This book is a practical introduction that focuses on the instruments, applications and risk management techniques essential for this rapidly evolving market. Fully updated to reflect the changes in these markets, the book also includes worked examples and case studies, and new sections on basket and structured finance repo.

Leseprobe

Table of Contents

The Securities & Investment Institute

Title Page

Copyright Page

Dedication

Foreword

PREFACE

PREFACE TO THE FIRST EDITION

ABOUT THE AUTHOR

Chapter 1 - INTRODUCTION TO REPO

IMPORTANCE OF REPO

MARKET PARTICIPANTS

THE REPO INSTRUMENT

OTHER REPO PRODUCTS

SELECTED REFERENCES

Chapter 2 - MARKET BACKGROUND

DISCOUNTING AND PRESENT VALUE

MONEY MARKET INSTRUMENTS

OVERVIEW OF BOND MARKET INSTRUMENTS

ACCRUED INTEREST

SELECTED BIBLIOGRAPHY

Chapter 3 - THE MECHANICS OF REPO

USES AND ECONOMIC FUNCTIONS

MARGIN

OTHER REPO MECHANICS

REPO DEALING RISKS

SELECTED REFERENCE

Chapter 4 - BASKET REPO, SYNTHETIC REPO AND STRUCTURED FINANCE REPO

BASKET REPO

SYNTHETIC REPO VIA THE TOTAL RETURN SWAP

STRUCTURED FUNDING VEHICLES: REPO CONDUIT

SELECTED REFERENCE

Chapter 5 - THE UK GILT REPO MARKET

INTRODUCTION

IMPACT ON THE GILT MARKET

MARKET STRUCTURE

GILT REPO AND THE YIELD CURVE

PATTERNS OF TRADING

GILTS SETTLEMENT AND CREST

GILT REPO CODE OF BEST PRACTICE

SELECTED REFERENCES

Chapter 6 - OVERVIEW OF REPO TRADING AND THE FUTURES CONTRACT IMPLIED REPO RATE

TRADING APPROACHES

SPECIALS TRADING

CREDIT INTERMEDIATION

MATCHED BOOK TRADING

HEDGING TOOLS

THE IMPLIED REPO RATE AND BASIS TRADING

SELECTED REFERENCES

Chapter 7 - REPO AND THE YIELD CURVE

ZERO-COUPON RATES

DISCOUNT FACTORS AND THE DISCOUNT FUNCTION

SPOT AND FORWARD RATES: BOOT-STRAPPING FROM THE PAR YIELD CURVE

THE RELATIONSHIP BETWEEN PAR, ZERO AND FORWARD RATES

EXERCISES AND CALCULATIONS

EXAMPLES

FORWARD PRICING AND REPO

SELECTED REFERENCES

Chapter 8 - THE GLOBAL MASTER REPURCHASE AGREEMENT

TBMA/ICMA AGREEMENT

THE GLOBAL MASTER REPURCHASE AGREEMENT

STRUCTURE

KEY PRINCIPLES

NEGOTIATION OF THE GMRA

CONDITION PRECEDENT

PRODUCT- AND COUNTERPARTYSPECIFIC AMENDMENTS AND ADDITIONAL ANNEXES

GILT REPO LEGAL AGREEMENT

SELECTED REFERENCES

Chapter 9 - ACCOUNTING, TAX AND REGULATORY CAPITAL ISSUES IN REPO

ACCOUNTING, TAX AND CAPITAL ISSUES

CAPITAL TREATMENT

THE BASEL II FRAMEWORK

EXERCISES

CASE STUDY: ABC BANK plc

REPO CASE STUDY ANSWERS

GLOSSARY

TECHNICAL APPENDICES

ABBREVIATIONS

INDEX

Other titles by the author

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Published in 2006 by John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester,

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Copyright © 2006 Moorad Choudhry

All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher. Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to [email protected], or faxed to ([phone]

Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, trademarks or registered trademarks of their respective owners. The Publisher is not associated with any product or vendor mentioned in this book.

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The views, thoughts and opinions expressed in this book are those of Moorad Choudhry in his individual private capacity and should not be taken to be the views of KBC Financial Products or KBC Bank N.V., or of Moorad Choudhry as an employee, officer or representative of KBC Financial Products or KBC Bank N.V.

This book does not constitute investment advice and its contents should not be construed as such. Any opinion expressed does not constitute recommendation to any reader. The contents should not be considered as a recommendation to deal and the author does not accept liability for actions resulting from a reading of any material in this book.

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To Nick Procter I think we all want to be you ...

FOREWORD

Repo has the widest application of almost any instrument within the financial markets. The market provides financing efficiencies, yield enhancement, liquidity, price discovery and transparency to a broad array of asset classes, from the highly commoditised to the esoteric. The liquidity and flexibility of repo attracts a wide cross section of participants, including commercial and investment banks, asset managers and corporate treasurers.

Financial institutions lending their assets via repo achieve enhanced portfolio returns through lower financing rates and volatility than the unsecured cash market. Investors needing to place cash holdings can precisely tailor their requirements through repo, taking advantage of its security, flexibility and most importantly its simplicity. As a money market instrument, repo enables market participants to express views on short-term interest rates, collateral types, specific issuers and bond issues. Repo is a major component in the Fixed Income market, as the key determinant in pricing underlying assets, particularly in hedging and in correctly trading the basis between onand off-balance sheet instruments in the government, corporate and asset-backed bond and derivatives markets.

Exponential growth in volumes, evolving scope and its huge importance in the efficient functioning of debt capital markets necessitate a wider understanding of the product. Repo differentiates itself from other financial products in that practitioners need to have a robust understanding of the linkages between the underlying asset and the corresponding credit, regulatory, accounting, and legal and settlement risks.

In this highly readable text Moorad Choudhry provides the essential account of the repo market that will appeal to student, academic and market practitioner alike. The book assumes no prior knowledge; with the early stages providing a comprehensive primer, using practical examples drawn from his extensive trading experience across repo, bond and structured products. The book considers further applications of repo, underlining its importance across the dealing room of financial institutions.

The reader’s attention is focused on the benefits of repo throughout, combining annotated technical analysis with real world application. The accessible style provides an indispensable guide for anyone with an interest in repo and the money markets. The book is set apart by giving the reader a broad awareness of the connectivity between repo and the wider range of capital markets businesses.

Adam SuttonHead of European Repo Global Funding Desk (Europe) Bank of America

PREFACE

The world of fixed income is dynamic and ever-changing, with new instruments, applications and processes being developed all the time. Although it is a commoditised and standardised product of long standing, repo, short for ‘sale and repurchase agreement’, is no different and we have new variations on a theme to talk about in this updated third edition. The devil is in the detail, as countless unimaginative journalists like to say, and the new developments in repo since the first edition of this book was published in 1999 are mainly of a detailed nature. As we said, repo is in essence a standardised product, as well as a very simple and basic one; this means it is easily adapted to new applications in new markets.

Another thing one would hope has been adapted and improved is my writing. It would be a poor author, in any field, whose quality of writing style and delivery had not improved over a period of seven years, so this third edition incorporates some additional bells and whistles to convince you that its purchase was worthwhile! What do we have that is new? Worked examples are now illustrated with Bloomberg screens, which most readers can expect to come across whether they are at a bank or indeed in the finance or economics department of their university. Other new content for this third edition includes:

• basket repo funding of portfolios of assets;

• illustrations of repo for structured finance securities such as asset-backed securities;

• synthetic repo or total return swaps, both single-name and basket deals;

• use of repo in commercial paper conduit structures;

• an updated look at the standard repo agreement, the GMRA, written by Daniel Franks;

• new illustrations from different markets.

For students and those taking training courses we also have some introductory-level exercises and a case study that illustrates the basic concepts.

We have removed the separate chapter on emerging market repo; the instrument itself is not a different one simply because one is dealing in an emerging market, even though local customs and practices may differ. Higher risk associated with emerging market collateral is also managed using the same practices adopted in developed markets. Hence, we don’t feel the need to address these markets separately. Practitioners who need to get to grips with a specific country market will need to research this themselves! Also, we don’t pretend to be able to cover the nuances of legal and accounting issues associated with repo so this is introduced in overview manner only.

As before, this book is intended for beginners or newcomers to the subject so we keep the level accessible at all times.

Enjoy!

Moorad ChoudhrySurrey, England March 2006

PREFACE TO THE FIRST EDITION

The repo market is an important component of the global capital and money markets. The first repo transactions were initiated by the US Federal Reserve over eighty years ago, since which time repo has become the main instrument of open market operations for many major central banks around the world. The market has grown substantially in the last ten years and is now estimated to account for up to 50% of daily settlement activity in non-US government bonds world-wide; this is a phenomenal figure. Daily outstanding volume in international repo transactions is approximately £420 billion.

The rapid growth in the use of repo world-wide has been attributed to several factors including the rise in non-bank funding and disintermediation, the expansion of public debt, the liquidity of the instrument itself and the generally high quality of collateral used. Its flexibility has resulted in repo being taken up by a wide variety of market players, from securities houses and investment banks to fund managers, corporate treasurers and local authorities. Virtually all major currency markets in the world now have an established repo market; the facility is also increasingly used in developing currency markets as well. Trading so-called ‘emerging markets’ repo brings with it specific risks and requirements and these are examined in a separate section.

This book is aimed at those with little or no previous understanding of or exposure to the repo markets; however it also investigates the markets to sufficient depth to be of use to a more experienced practitioner. It is primarily aimed at front office, middle office and back office banking and fund management staff who are involved to some extent in the repo markets. Others including corporate and local authority treasurers, risk management and legal department staffs may also find the contents useful. Comments on the text should be sent to the author care of the Securities and Investment Institute.

ABOUT THE AUTHOR

Moorad Choudhry is Head of Treasury at KBC Financial Products in London. He joined there from JPMorgan Chase Bank, where he was a vice-president in Structured Finance Services sales and marketing. Prior to that he was a sterling proprietary trader in the Treasury division at Hambros Bank Limited, and at ABN Amro Hoare Govett Sterling Bonds Limited where he ran the short-dated gilts and money markets desk. He began his City career at the London Stock Exchange in 1989.

Moorad is a Visiting Professor at the Department of Economics, London Metropolitan University, a Visiting Research Fellow at the ICMA Centre, University of Reading, a Senior Fellow at the Centre for Mathematical Trading and Finance, Cass Business School, and a Fellow of the Securities and Investment Institute.

Chapter 1

INTRODUCTION TO REPO

The repo market is a vital element of the global capital and money markets. The first repo transactions were initiated by the US Federal Reserve in 1918, since which time repo has become the main instrument of open market operations for virtually all central banks around the world. It is also a major component of the global money markets. The market experienced substantial growth during the 1990s and is now estimated to account for up to 50% of daily settlement activity in non-US Government bonds world-wide; this is a phenomenal figure. Daily outstanding volume in international repo transactions has been estimated at between £440 billion to £450 billion; in the USD domestic market, daily deal volume is over $1,000 billion.

Repo, from ‘sale and repurchase agreement’, is closely linked to other segments of the debt and equity markets. From its use as a financing instrument for market makers to its use in the open market operations of central banks, and its place between the bond markets and the money markets, it integrates the various disparate elements of the marketplace and allows the raising of corporate finance across all sectors.

Repo is an interesting product because, although it is a money market product by dint of the term to maturity of repo trades, the nature of the underlying collateral means that repo dealers must be keenly aware of the assets that they ‘trade’ as well. The assets will be bonds, equity or other collateral of value. This multi-faceted nature of repo is apparent in the way that banks organise their repo trading. In some banks it is part of the money market or Treasury division, while in other banks it will be within the bond trading area. Equity repo is sometimes a back-office activity, as is the longer established stock borrowing desk. However, it is not only commercial and investment banks that engage in repo transactions. Across the world, repo is a well-established investment product, utilised by fund managers, hedge funds, corporate treasuries and local authorities. The practicality and simplicity of repo means that it can be taken up even in capital markets that are still at an ‘emerging’ stage, and by a wide range of participants. It is traded in virtually every country with a debt capital market.

The use of repo enhances the liquidity of bond and equity markets, which reduces costs for issuers of capital, and allows market makers to hedge positions with greater efficiency. Given its size and importance, it is surprising that repo has such a low profile – for example, there is little discussion of it in the financial press. This reflects the simple and straightforward nature of the instrument. Indeed, the fundamental nature of repo is its simplicity: the sale of securities coupled with an agreement to repurchase them at a future date – in other words, a secured loan of cash. It is this simplicity and flexibility that has allowed repo to be used for a variety of purposes, or to meet a range of requirements.

IMPORTANCE OF REPO

Previous literature highlights the importance of the repo market. In Professor Frank Fabozzi’s book Securities Lending and RepurchaseAgreements (FJF Associates 1997), Kenneth Miller of Goldman Sachs writes:

The global fixed income markets could not be as large as they are today without the parallel existence of a highly liquid, low credit risk vehicle in which participants can borrow cash and securities. The repurchase agreement (repo) is the foundation for the fixed-income markets. Without repo, the development of a liquid derivatives market, notably swaps and financial futures, would not have been possible. (p. 13)

Robert Sloan of Credit Suisse First Boston writing in the same book states:

If one looks at many fixed income desks, it is easy to see that the repo desk is at the hub of the trading floor... the repo desk is the centre of activity ... the repo desk functions as the spoke in the wheel for almost all fixed income activities: government [bond] auctions, option pricing, corporate bond financing and customer leverage...

The repo desk is also organized to fund the firm’s inventory. This was the original intent of the repo desk. (p. 248)

So we can see that repo is an important product and a vital part of the financial markets. Most market participants will need to be familiar with it, or at least the concept of it, in order to better understand the nature of their own roles.

There are a number of benefits in using repo, which concurrently have been behind its rapid growth. These include the following:

• bank dealers are able to finance their long bond and equity positions at a lower interest cost if they repo out the assets; equally, they are able to cover ‘short’ positions;

• there is greater liquidity in specific individual bond issues;

• greater market liquidity lowers the cost of raising funds for capital market borrowers;

• central banks use repo in their open market operations, which assist in the maintenance of overall money market liquidity;

• repo reduces counterparty risk in money market borrowing and lending, because of the security offered by the collateral given in the loan;

• investors have an added investment option when placing funds;

• institutional investors and other long-term holders of securities are able to enhance their returns by making their inventories available for repo trading.

There is a close relationship between repo and both the bond and money markets. The use of repo has contributed greatly to the liquidity of government, Eurobond and emerging market bond markets. Although it is a separate and individual market itself, operationally repo is straightforward to handle, in that it generally settles through clearing mechanisms used for bonds. As a money market product, repo reduces the stress placed on the unsecured interbank market, and empirical evidence indicates a reduction in overnight interest-rate volatility.

MARKET PARTICIPANTS

The development and use of repo in each country to an extent dictates the nature and range of market participants. In a mature market, repo counterparties include investors and cash-rich institutions, those seeking to finance asset positions and their intermediaries. Some firms will cross over these broad boundaries and engage all aspects of repo trading. The main market parties are:

• Financialinstitutions – retail and commercial banks, building societies, securities houses and investment banks.

• Investors – fund managers, insurance companies and pension funds, investment funds, hedge funds, local authorities and corporate treasuries.

• Intermediaries – inter-dealer brokers and money brokers. The main brokers are Cantor Fitzgerald, Prebon Yamane, Garban ICAP, Tullett & Tokyo, and Tradition. Indiviual markets also have other brokers.

Repo is perhaps the most important financial instrument in the world, after the basic cash equity and bond product. An understanding of it is vital for all participants in the financial markets, be they students or practitioners.

THE REPO INSTRUMENT

A repo agreement is a transaction in which, legally, one party sells securities to another, and at the same time and as part of the same transaction commits to repurchase identical securities on a specified date in the future at a specified price. The seller delivers securities and receives cash from the buyer. The cash is supplied at a predetermined interest rate – the reporate – that remains constant during the term of the trade. On maturity the original seller receives back collateral of equivalent type and quality, and returns the cash plus repo interest. One party to the repo requires either the cash or the securities and provides collateral to the other party, as well as some form of compensation for the temporary use of the desired asset. Although legal title to the securities is transferred, the seller/ borrower retains both the economic benefits and the market risk of owning them.

Characteristics of repo

There are a number of repo types in operation in different markets. They differ in detail only, and in the motivation behind their use: the economic impact of all of them is essentially identical. The different types are:

• Classicrepo – the basic form of repo and what is generally understood to be in use when one refers to a ‘repo trade’. This is a secured loan conducted under a standard legal agreement, defined as the sale of an asset at a specified price, with an undertaking to repurchase the asset or an equivalent asset at the repo maturity date. A repo is a sale and repurchase, while a buy and subsequent sale is a reverse repo.

• Buy/Sell-back – economically, identical to a classic repo, and until 1995 (when the transaction was included in the standard repo legal agreement) often not conducted under a legal agreement. A buy/sell was in theory two separate transactions, with the repo interest incorporated into the sell-back price of the asset on maturity, referred to as the forward price.

• Stock loan or securitieslending – a transaction motivated by a requirement to borrow a bond or equity, often for the purpose of short-position covering. In a stock loan, a security is lent out for a fixed term or on overnight roll, with collateral, usually in the form of cash, given up in return. The lender of stock pays interest on the collateral during the term of the repo, this interest being known as the rebate. A fee is charged by the stock lender for this business.

• Collateralisedloan – this is a straightforward bank loan, but with collateral given up by the cash borrower.

• Total returnswap – these days this is classified as a credit derivative, although their use pre-dates that of credit default swaps. A total return swap (TRS) has the same economic effect as a repo, and is sometimes called a ‘synthetic repo’. It is materially different in that it is carried out under a different legal agreement to that of classic repo, and it is treated differently for capital, tax, accounting and regulatory purposes. We discuss this in Chapter 4.

To begin with we shall consider the operation of classic repo, the type prevalent in most markets.

Classic repo

There will be two parties to a repo trade, let us say Bank A (the seller of securities) and Bank B (the buyer of securities). On the trade date the two banks enter into an agreement whereby on a set date, the value or settlement date, Bank A will sell to Bank B a nominal amount of securities in exchange for cash. The price received for the securities will be linked to the settlement price of the stock on the trade date. The agreement also demands that on the termination date Bank B will sell identical stock back to Bank A at the previously agreed price, and consequently Bank B will have its cash returned with interest at the agreed repo rate.

In essence, a repo agreement is a secured loan (or collateralised loan) in which the repo rate reflects the interest charged. The mechanism is illustrated in Figure 1.1.

A reverse repo is the mirror image of a repo; that is, purchasing the bond and then selling it back on termination. Of course, every repo is a reverse repo, depending from which party’s point of view one is looking at the transaction.

Figure 1.1 Classic repo.

Example 1.1 Classic repo transaction.

To illustrate the basic principle, consider the following. This illustrates a specific repo – that is, one in which the collateral supplied is specified as a particular stock as opposed to a general collateral (GC) trade in which a basket of collateral can be supplied, of any particular issue, as long as it is of the required type and credit quality.

In this example, on 22 December 2005 Bank B agrees to sell £10 million nominal of a United Kingdom gilt, the 5% Treasury 2012, which is trading at a dirty price of 104.7079. The agreement will begin on 23 December, the value date. The term of the trade is specified as 1 month or 30 days, but the termination date is 23 January 2006 and not 22 January because the latter is not a business day; hence, the actual term is 31 days. The agreed repo rate for the (effectively collateralised) loan is set at 4.50%, the 1-month repo rate for UK Government stock (see Figure 1.3). On 23 December Bank A receives £10m nominal 5% Treasury 2012 stock, which has a settlement value of £10,570,790 (clean price plus accrued interest).1

On 23 January 2006 Bank B receives back the gilt and returns the original cash amount of £10,570,790 along with a repo interest payment of £40,400.69. This is shown in Figure 1.4.

Figure 1.2 is the Bloomberg page RRRA for this trade, showing the cash flows we describe above. Figure 1.3 is the HBOS repo rates screen for 22 December 2005, showing the 1-month UK repo rate as 4.50%.

The repo interest is based on a 30-day repo rate of 4.50% and a 365day-count basis. Repo rates are agreed at the time of the trade and are quoted, like all interest rates, on an annualised basis. The repo interest under the agreement equals the cash loaned multiplied by the repo rate, multiplied by the term of the loan as a proportion of the year:

The settlement price (dirty price) is used because it is the market value of the bonds on the particular trade date and, hence, indicates the cash value of the gilts. The object is to minimise credit exposure by equating the value of the cash and the collateral.

Figure 1.2 RRRA screen as at 22 December 2005, 1-month repo of GBP 10 million nominal 5% Treasury 2012.

© Bloomberg L.P. Used with permission. Visit www.bloomberg.com

Figure 1.3 HBOS screen for gilt repo rates as at 22 December 2005.

© HBOS plc. © Bloomberg L.P. Used with permission. Visit www.bloomberg.com

Note how we have lent the market value of the stock against the collateral – that is, there is no margin or haircut. A margin is just like the deposit on a house purchase, it protects the cash lender against a fall in value of the collateral. In practice, margin is always taken and can range from 2% to 50% of the collateral value, depending on the perceived risk of the transaction from the cash lender’s point of view.

Figure 1.4 Specific gilt repo.

What if the trade is initiated the other way? Imagine a bank has £10 million to invest, and wishes to receive UK gilt securities as collateral. This is the same trade, we just adjust the calculation to determine how much securities we need to pass over. Example 1.2 shows the calculation using the same security, the 5% 2012 gilt, that we looked at above.

Example 1.2 Classic repo: investor’s example.

On 22 December 2005, a corporate wishes to invest GBP 10 million against UK Government bonds for 1 month. The collateral is the 5% gilt due in March 2012. The repo rate is agreed at 4.61%. The gilt price is 104.22 clean, which together with 1.4779 accrued interest (107 days) gives a dirty price of 105.6979.

The borrower of cash will need to determine the face value of gilts require dat current market price that will equate to GBP 10 million. This is shown below:

The nominal value of bonds required (X) is 9,460,925.90. This is rounded to the nearest GBP 1.00 in practice, although gilts can trade in amounts down to GBP 0.01.

The start proceeds are therefore 9,460,925 × 105.6979%, which is in fact GBP 9,999,999.10, although in practice the whole amount will be exchanged. The trade details are summarised below:

NominalGBP 9,460,925 of 5% 2012Clean start price104.22Accrued1.4779Dirty start price105.6979Settlement moneyGBP 10,000,000.00Dirty end price105.6979Repo interestGBP 39,153.42[10,000,123 × 4.61% × 31/365]Termination moneyGBP 10,039,153.42

Note that the sale and repurchase prices are the same.

Summary

In a classic repo then, as we have seen, one party sells assets such as bonds to another while simultaneously agreeing to repurchase them on a future date at a specified price. The sale and repurchase prices are the same, although settlement values will differ because on termination of the repo the interest is added on. If a coupon is paid it will be handed over to the seller on the coupon value date. This is known as a manufactured dividend. This reflects the fact that, although legal title to the collateral passes to the buyer in a repo, economic costs and benefits of the collateral remain with the seller.

A classic repo transaction is subject to a legal contract signed in advance by both parties. A standard document will suffice – it is not necessary to sign a legal agreement prior to each transaction. The standard legal contract is the Bond Market Association (BMA)/ International Capital Markets Association (ICMA) Global Master Repurchase Agreement (GMRA). This is discussed in Chapter 8.

The sell/buy-back2

In addition to classic repo there also exists a buy/sell or a sell/buy-back. A sell/buy-back is defined as an outright sale of a bond on the value date, and an outright repurchase of that bond for value on a forward date. In Figure 1.1, the cash flows, therefore, become a sale of the bond at a spot price, followed by repurchase of the bond at the forward price. The forward price calculated includes the interest on the repo, and is therefore a different price to the spot price.