What Is the Difference Between Repo and Securities in Finance?
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 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. Stockloan 101 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