Hedge Funds Repurchase Agreements

If a hedge fund manager „shortens” a security, the manager receives cash for the sale of a borrowed security that the manager will have to buy back from the first broker in the future. The borrowed money can then be used to buy more securities, giving the hedge fund the opportunity to buy more assets than the value of the fund. A repo is a short-term sale between financial institutions in exchange for government bonds. Both parties agree to cancel the sale in the future for a small fee. Most rests are overnight, but some can stay open for weeks. They are used by companies to raise money quickly. They are also used by central banks. One possible solution is to lend directly to smaller banks, securities dealers and hedge funds through the pension market clearing house, the Fixed Clearing Company (FICC). . . .