The TBMA/ISMA Global Master Repurchase Agreement 2011: An Introduction

The TBMA/ISMA Global Master Repurchase Agreement (GMRA) is a standard legal contract designed for the repurchase, or « repo, » transaction market. Originally created by the International Securities Market Association (ISMA), which later merged with the International Capital Market Association (ICMA), the GMRA sets out the terms and conditions for repurchasing securities that have been sold, either outright or on a term basis, with a commitment to repurchase the securities at a later date.

As the repo market has grown in size and complexity over time, it became necessary to update the GMRA. Hence, the 2011 version was created by the ICMA in collaboration with the European Repo and Collateral Council (ERCC) of the ICMA and the European Banking Federation (EBF).

What Is a Repurchase Agreement?

A repurchase agreement, colloquially referred to as a « repo, » is a financial instrument that enables a dealer to borrow money by selling securities and agreeing to repurchase them at a later date, typically the next day. The buyer of the securities, usually a money market fund or a bank, earns a return on the cash lent out, which is equivalent to the interest rate on the loan.

The repo market functions as a crucial source of short-term financing for banks and other financial institutions. It is also a key instrument in managing liquidity and capital requirements.

What Does the GMRA 2011 Cover?

The GMRA 2011 consists of two main sections: the main body, which contains the core terms of the agreement, and the annexes, which list the types of securities and other provisions that supplement the main body.

The agreement covers a broad range of securities, including government and corporate bonds, equities, and various types of debt instruments. It also specifies the mechanics of the repurchase transaction, such as the collateral required, the calculation of interest, and the timing of the repurchase.

The GMRA 2011 is designed to allow parties to tailor the agreement to their specific needs and preferences. For instance, they can choose from a range of options as to the type of collateral that will be accepted, the valuation methodology, and the events that trigger the right to terminate the agreement.

Implications for the Repo Market

The GMRA 2011 has been widely adopted by market participants and has become the standard legal agreement for repos. Its adoption has helped to standardize the repo market and enhance transparency and efficiency.

However, like any legal document, the GMRA 2011 is not without its issues and limitations. Some market participants have criticized the agreement for being complex and difficult to understand, and for not addressing some of the key risks associated with repo transactions, such as counterparty risk and systemic risk.

Nonetheless, the GMRA 2011 is an essential document in the repo market and plays a crucial role in ensuring the smooth functioning of this important financial market.