Repos

A GC repo list is a list of bonds that are all acceptable and interchangeable for a repo deal. They are generally liquid issues. If there is exceptional demand for repos in a specific bond, then it can be called "trading special". Repos for that bond will attract lower repo rates because the demand has made the bond "scarce".

 

To make sure that i understand it fully, does the seller of stock in a specific repo have to sell it at a lower price than would be the case under a general collateral repo?
So the purchaser of the stock under a specific repo receives a higher return (i.e. repo rate) to compensate for the illiquidity of the gilts which he receives as collateral relative to a general collateral repo?

Repo transactions are usually done on rates - the actual prices are not that important. If you sell a gilt at 90 and agree to buy it back at 91, you get a similar transaction as when you agree to see it at 93 and buy it back at 94 (if you see what I mean). It simply means that the prices arranged are such that the return to the person selling and repurchasing the gilt are lower than would be the case with a gilt that is not special.


Does the term "market rates" in the core reading refer to the price of the gilt repo?


I think it refers to the market repo return rather than the price.



I am getting confused by the second sentence of the core reading: I would expect the repo rate on a specific repo to be higher than the repo rate on a general collateral repo, so why would the stock be tradin special when the repo rate on a particular stock is less than the repo rate on a general collateral repo?


I can only go by what the core reading suggests as I have no specific experience here, but it says that those trading special offer a lower rate. It makes sense though. If I had a gilt that was in demand, and I wanted to use it to borrow cash for a couple of weeks, I would expect to be able to borrow at a slightly lower rate because of the high demand for that "special" gilt.