Investing Ideas

Understanding repurchase agreements

How the money market industry utilizes repos to add value to their portfolios

By: Fidelity Investments

Updated: 9/12/2023

Key Takeaways

Repurchase agreement transactions (repos) are used by money market funds as short-term investments.
Repos are backed by collateral including Treasury and other government securities, as well as a range of nontraditional repo collateral including, but not limited to, fixed income and equity securities.
Fidelity’s money market mutual funds enter into repos only with counterparties that Fidelity’s research team determines to represent minimal credit risk. Fidelity money market funds also participate in the repo market through a structured Federal Reserve (Fed) program, the Overnight Reverse Repo Facility (ON/RRP), in which the Fed acts essentially as another repo counterparty.
Several industry-standard methods utilized to settle repurchase agreement transactions ensure the delivery of adequate and eligible securities against the required cash payments by the parties.

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