Publication date: 09.05.2024
I am studying in the third year of the State University of Economics and Technology.I specialize in contractual, economic and corporate law, in particular, I provide consultations and write articles.
A repo agreement is a financial agreement between two parties, which consists in the sale and subsequent repurchase of assets under predetermined conditions. One party, called the seller or reporter, sells assets (such as securities) and the other party, called the reported (buyer), agrees to accept those assets under the terms specified in the agreement.
The main legal aspects of this type of agreement in Ukraine can be described as follows:
Civil legislation: Legal relations arising in connection with the repurchase agreement are regulated by the Civil Code of Ukraine. A repo contract is recognized as a civil law agreement where one party (the seller) produces assets (for example, securities) and undertakes to buy them back in the future, and the other party (the buyer) agrees to accept these assets under the terms specified in the contract.
Regulation of the National Bank of Ukraine (NBU): Some aspects of repo contracts may be subject to regulation and control by the National Bank of Ukraine. The National Bank of Ukraine may establish requirements regarding the conditions for carrying out repo operations in order to ensure financial stability.
Securities Market Regulation: Repurchase Agreements typically relate to securities, so such agreements may also be subject to securities market regulation, including transaction registration and record-keeping requirements.
The main varieties of the repo agreement include the following:
Plain Vanilla Repo: This is the most common type of repo contract, where one party (the seller) produces assets (such as securities) and commits to repurchase them in the future, and the other party (the buyer) agrees to accept these assets under the terms specified in the agreement.
Open Repo: In this version of the repo contract, there is no clearly defined term for the redemption of assets. Instead, the agreement may be terminated at any time by mutual consent of the parties.
Fixed Repo (Term Repo): This type of repo establishes a clearly defined term during which the assets are sold with the obligation to buy them back. The term can be very short (for example, for one day) or long-term (for example, for several months or years).
Reverse Repo: In this case, the buyer of assets acts as the seller, and the seller acts as the buyer. That is, one party is the buyer of assets, and the other party is the seller. Reverse repo is often used by financial institutions to raise liquidity.
Term repo: a clearly defined term is established. Interest and interest income and expenses are determined and fixed at the time of the transaction.
The terms of the repo agreement may vary depending on the specific terms of the agreement and the needs of the parties. However, the main constituent conditions usually include the following elements:
Identification of the parties: The contract must clearly identify the parties to the transaction - the seller (the owner of the asset who sells) and the buyer (who buys the asset). Sometimes these roles can be mixed or done through an intermediary (repository) that helps arrange the deal.
Description of assets: The agreement should identify the specific assets to be sold and repurchased. These can be securities (shares, bonds, government securities, etc.), goods or other financial instruments.
Term of the agreement: The agreement must define the term during which the assets are sold with the obligation of their subsequent redemption (repository period). Usually, this period is set in advance and can be short-term or long-term.
Price: The agreement must specify the price at which the assets will be sold and repurchased. The price can be fixed or set according to market rates at the time of conclusion of the agreement.
Redemption terms: The contract should specify the terms under which the merchant can redeem the assets at the end of the repository period. This may include a fixed amount set by the agreement or a price that depends on market conditions.
Interest rate (repo rate): This is the percentage at which the buyer agrees to sell assets to the seller during the repository period. This rate may be fixed or may vary depending on market conditions.
Terms of settlements: The contract must define the terms and terms of settlements for sold and bought assets. This may include determining the payment term, the procedure for transferring ownership of assets, as well as determining commissions and other costs.
Procedure for resolving disputes and responsibility of the parties: The agreement may contain provisions on the resolution of disputes between the parties and determine responsibility for breach of the terms of the agreement. In most cases, it is stipulated that the guilty party pays a penalty of 0.5% for each day the obligation is overdue, but no more than double the rate of the NBU in effect at the time of the overdue, as well as compensation for damages.
Lawyer services in concluding contracts:
The legal services are extremely important at each stage of the conclusion of the contract, especially if there is a wide classification and many features, as in the case of a repo agreement. The lawyer advice will conduct a legal analysis of the situation, establish the required type of contract on the basis of this, draw up a project and take into account the requirements of the law. Therefore, the lawyer consultation is an extremely necessary tool for achieving the desired results when concluding a contract.
