The difference between repo and simultaneous is that the simultaneous transmits the availability of the title and the repo does not.
The repos and the simultaneous are financial operations that consist of the purchase / sale of securities with the agreement to repurchase / resell them after a while. That is to say, two operations of opposite sign concur with different execution date.
They are used for short periods of time, in which short-term financial assets are normally traded . For example, letters , bonds or obligations of the state.
Utility of simultaneous
Simultaneous, they are very useful because of the characteristic that differentiates them from repos. And, they allow to cover short portfolios of public fixed income (since in the operation the availability of the fixed income title is transmitted), with simultaneous purchases.
This is so, because banks cannot “sell”, that is to say, to cut short in a fixed-income operation without having the availability of the title, so they buy simultaneously for short periods of time to have the title and get short of another title that Have in wallet.
Therefore, one of its purposes is that entities can take short positions at their treasury tables.
Usefulness of repos
The repos must be made only with clients, and do not allow the transfer of the title in their balance sheet . The above is so, because they are configured to avoid the counterparty risk and at the end of the repo the customer will never have sold it on expiration.
Next, the scheme of purchase / sale flows of a repo / simultaneous is explained:
- The buyer of a repo / simultaneous:It is the one that receives the financial asset in its balance sheet (remember that repos do not transmit the title, there is simply an account entry) and as consideration gives cash in return. It is an investment operation, because once the final date of the repo (maturity) has arrived, the buyer of the repo will receive the cash plus interest.
- The seller of a repo / simultaneous:It is the one who delivers the financial asset (remember that repos do not transmit the title, there is simply an account entry), and as consideration receives a cash. It is a financing operation, because once the final date of the repo has arrived, the seller must return the cash he has received plus interest.