Who Uses Repurchase Agreements

Repurchase agreements, also known as repos, are a financial tool used by various parties in the market to borrow or lend cash in exchange for securities. While repos are commonly used by large financial institutions, such as banks and broker-dealers, there are other entities that use them as well.

One of the primary users of repos is the Federal Reserve (Fed). The Fed engages in repos with its counterparties, such as banks and other financial institutions, to influence the money supply and manage short-term interest rates. By conducting repos, the Fed can inject cash into the market or remove it when necessary to maintain its monetary policy objectives.

Another group of users of repos are hedge funds and asset managers. These entities use repos as a way to obtain short-term financing to support their investment strategies. For example, a hedge fund may use a repo to finance the purchase of securities that they believe will increase in value over the short term.

Corporate treasurers also use repos as a way to manage their cash balances and obtain short-term financing. For example, a corporation with excess cash may lend it out in a repo in exchange for securities. This can provide the corporation with additional income on their cash holdings while also providing them with a source of short-term financing if needed.

Lastly, individuals may also use repos through money market funds. Money market funds invest in short-term securities such as Treasury bills, commercial paper, and repos. By investing in these funds, individuals indirectly participate in the repo market.

In summary, while large financial institutions are the primary users of repos, there are other entities, such as the Federal Reserve, hedge funds, asset managers, corporate treasurers, and individuals, that also use them to manage their cash and obtain short-term financing.