However, despite regulatory changes over the past decade, systemic risks remain for repo space. The Fed continues to worry about a default by a major rean trader that could stimulate a fire sale under money funds that could then have a negative impact on the wider market. The future of storage space may include other provisions to limit the actions of these transacters, or may even ultimately lead to a shift to a central clearing system. However, for the time being, retirement operations remain an important means of facilitating short-term borrowing. The Fed makes reverse deposits with primary traders and other banks, government-subsidized companies and money funds. It sells treasures and other securities to banks. This reduces the level of credit available to banks and thus increases interest rates. Like many other corners of finance, retirement operations contain terminology that is not common elsewhere. One of the most common terms in repo space is “leg.” There are different types of legs: for example, the part of the retirement activity that originally sells security is sometimes called “starting leg,” while the subsequent buyback is the “close leg.” These terms are sometimes replaced by “Near Leg” or “Far Leg.” Near a repo transaction, security is sold. Beginning in late 2008, the Fed and other regulators introduced new rules to address these and other concerns. One consequence of these rules was to increase pressure on banks to maintain their safest assets, such as Treasuries. They are encouraged not to borrow them through boarding agreements.

According to Bloomberg, the impact of the regulation was significant: at the end of 2008, the estimated value of the world securities borrowed was nearly $4 trillion. But since then, that number has been close to $2 trillion. In addition, the Fed has increasingly entered into pension (or self-repurchase) agreements to compensate for temporary fluctuations in bank reserves. This is the “eligible security profile” that allows the purchaser to take the risk of defining his appetite for risk with respect to the collateral he is willing to hold for his money. For example, a more reluctant pension buyer may only hold “current” government bonds as collateral. In the event of liquidation of the pension seller, the guarantee is highly liquid, so that the pension buyer can quickly sell the security. A less reluctant pensioner may be willing to take bonds or shares as collateral without investment degree bonds or shares, which may be less liquid and which, in the event of a pension seller`s default, may experience higher price volatility, making it more difficult for the pension buyer to sell the guarantees and recover his money. Tripartite agents are able to offer sophisticated collateral filters that allow the repo buyer to create these “legitimate collateral profiles” capable of generating systemic collateral pools reflecting the buyer`s appetite for risk. [13] Pension transactions (also known as rest) are carried out only with primary traders; Reverse-repurchase agreements (also known as “reverse-rest”) are implemented both with primary traders and with an expanded range of reverse pension counterparties, including banks, state-subsidized enterprises and money funds.