What is the difference between securities lending and repo?
A repurchase agreement (repo) is another type of short-term cash loan and is widely considered to be the closest sibling of securities lending.
In a repo transaction, a fixed income security is sold with an obligation to buy it back in return for cash. At the end of the term, the buyer returns the security and the seller returns the cash, plus interest.
Securities lending and repo are part of the broader category of securities finance as they both facilitate the temporary transfer of securities, on a collateralised basis, in return for an agreed interest rate that is accrued daily. However the mechanics of a repo transaction are different to those of a securities lending transaction. Also, a repo agreement is usually governed by a different contractual agreement to a securities lending transaction, which is called a Global Master Repurchase Agreement (GMRA).
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With securities lending, as with other investment activities, your capital may be at risk.
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