ISMA says that many repo transactions remain mismatched for long periods of time, which is common practice in speculative repo trading in the more highly-developed US market.
Currently some firms confirm only the first leg of buy/sell back transactions (i.e., the purchase of securities) upon entering into a transaction and then confirm the second leg (i.e., the sell back of securities) not earlier than two days before the execution of the second leg, ISMA said at its recent meeting.
The European repo committee considers this to be “problematic” in all cases and particularly in long-term buy/sell backs where mismatched trades remain undetected for a long period of time.
The Global Master Repurchase Agreement and the Buy/Sell Back Annex provide for confirmations to be made either on this basis or for a single confirmation to be delivered in respect of both legs of the buy/sell back transaction (paragraph 3 of Annex III to the GMRA 1995 and paragraph 3(b) of the Buy/Sell Back Annex to the GMRA 2000).
The European repo committee encouraged firms in the future to confirm both legs of buy/sell back transactions promptly upon entering into a transaction, ISMA said.