Division 11

Reverse repurchase agreements: This transaction occurs where an AIF ‘purchases’ securities from a repo counterparty and agrees to sell them back at an agreed price in the future. AIFs normally engage in these transactions to generate a low-risk money-market type return, and the ‘purchased’ securities act as collateral. Therefore no global exposure is generated; nor does the AIF take on the risks and rewards of the ‘purchased’ securities, i.e. there is no incremental market risk. However, it is possible for the ‘purchased’ securities to be further used as part of a repo or security-loan transaction, as described above, and in that case the full market value of the securities must be included in the global exposure amount. The economic risks and rewards of the purchased securities remain with the counterparty and therefore this does not increase the exposure of the AIF.