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What Is the Difference Between Repo and Securities in Finance?

January 03, 20242 min read

Have you ever needed to tap into some capital that's tied up in securities or shares? We already know the answer, and that answer is yes. Every company wants to maximize their access to liquid capital.

But before we get into talking about how to make that happen, we need to break down the basics. How well do you really understand repos and securities? We're willing to bet you could use a little refresher.

Can you answer the question, "what is the difference between repo and securities in finance? Today we're here to help you answer that question and more.

What's a Repo?

Repo stands for repurchase agreement. They're an excellent way to raise money on a short-term basis. The "dealer" sells an "investor" a government security with the promise to buy them back (usually the following day).

In the business world, your company could become a "repo dealer" by selling securities to another party. Selling the securities raises short-term capital without actually losing the security.

Your business buys the security back after a pre-determined amount of time.

Securities Are...?

Securities are stocks, derivatives, and other investments. Though we're concerned with something called securities lending. Securities lending involves loaning a security to an investor.

The investor puts up collateral (cash, other securities, etc.) and buys the security. The title and ownership actually transfer to the borrower. The borrower then sells the security "short" to other institutions. The goal is to sell high and buy the stock back at a lower price.

Part of the proceeds from those sales gets paid to the original lender. After a predetermined amount of time, the original lender also recoups ownership of the security.

Repos v. Securities

Repos and securities both involve financial transactions that transfer ownership of securities. While they're very similar, there are a few key differences that set them apart. When you're dealing with securities in finance, key differences matter.

Repos require general collateral rather than equities. Securities lending uses company equity for collateral while repos use bonds and other fixed assets. The borrowed equity makes for a key difference.

Securities lending also involves the equity's attached voting rights. Because borrowers own the securities and their attached equity and voting rights, lenders can recall the loan if they need to respond to corporate actions or vote on pressing issues within their business.

Repos have no such recall power. Nor do repos involve the transfer of voting rights.

Your Own Securities in Finance

Lending securities is still complex, even after our crash course in repos and securities lending. The markets are always changing and every transaction comes with some amount of risk.

That's why we want to help your company turn assets into cash. A stock loan allows your business to take a loan against shares of non-marginable securities.

So if you need cash fast, get in touch with us. Our business is dedicated to ensuring you get the liquidity you need when you need it

David

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The information contained herein is presented solely for the purposes of discussion and under no circumstances should this be considered an offer to buy or a solicitation of an offer to sell any security. Stock Loan Solutions is not a registered securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. Stock Loan Solutions, its managers or affiliates have not been registered and do not plan to be registered under the Investment Advisers Act of 1940 or any similar state or foreign securities laws. Stock Loan Solutions is not registered under the Investment Company Act of 1940 or under any similar state or international securities laws. Stock Loan Solutions does not offer any form of investment (buy or sell) advice, tax counseling, estate planning, or any other securities or financial advice whatsoever. No statements on this website or any verbal or written statement by any representative shall be construed as such advice. We are neither licensed nor qualified to provide investment advice.

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