Good Practices for Developing a Local Currency Bond Market by Asian Development Bank;

Author:Asian Development Bank;
Language: eng
Format: epub
Publisher: Asian Development Bank Institute
Published: 2019-08-15T00:00:00+00:00

4. Repurchase Agreements and Securities Lending and Borrowing Functions

439. Repurchase agreements (repo) and securities lending and borrowing (SLB) are examples of tools to increase or improve market liquidity in a bond market. They represent policy measures that require implementation through a comprehensive legal and regulatory framework, while their introduction may not always be suitable at the early stages of a bond market’s development. Repo and SLB require the existence of pledge and/or loan concepts, preferably a predetermined solution as to their tax treatment, as well as clarity on the treatment of such transactions during insolvency or bankruptcy proceedings (see also the section on a robust legal framework in this document).

440. At the same time, repo and SLB are products that give market participants greater flexibility in the use of their debt instrument holdings and create financing and additional earning opportunities with limited risk since these transactions are fully collateralized. They are also indispensable products in the interbank money market, and the implementation of a central bank’s monetary policy, for obtaining the right type of collateral to support business operations, as well as in the context of shorting selling strategies.

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