If the Fed wants to tighten the money supply, hungry for liquidity, it sells the bonds to commercial banks through a pension purchase contract or a brief repot. Later, they will buy back the securities through a reverse pension and return money to the system. A buy/sell back is the equivalent of a “reverse repo.” Deposits are traditionally used as a form of secured loan and have been treated as such tax-wise. However, modern repurchase agreements often allow the lender to sell the collateral provided as collateral and replace an identical guarantee when buying back.  In this way, the lender will act as a borrower of securities, and the repurchase agreement can be used to take a short position in the guarantee, as could a securities loan be used.  The Securities Exchange Act 15c3-l requires that a broker`s net capital be greater than the value above $25,000, or 6% of its total debt, 9, if the broker-dealer does not choose the alternative method. If it chooses the alternative method referred to in point f), the broker`s net capital must exceed the highest amount of $100,000 or 2 per cent of the total planned positions, as calculated in accordance with Rule 15c3-3a of the Securities Exchange Act 15c3-3a for the determination of the reserve requirement for brokers and traders (“reserve formula”). Net capital numbered with rule 15c3-1, point c) (2) is calculated, including by deducting unsecured assets, unsecured debts and certain deductions as a percentage of the market value of the entity`s positions from net worth. These percentages generally take into account market risk, liquidity and volatility of the broker`s outstandings. When the single net capital rule was adopted in 1975, the Commission invited brokers to deduct, for the net amount of capital, the amount for which the price of the reverse rest contract exceeded the value of the securities received under the agreement (“repo deficit”).10 The Commission rule reflected that the broker is exposed to risk when a broker does not receive securities or other assets within their scope sufficient to cover the counterparty`s commitment under a reverse repurchase agreement. Rule 17a-3 imposes the books and records that a broker must maintain. The proposed amendments include that a broker-trader must retain: (i) a separate distributor reflecting assets and liabilities resulting from repurchase and self-financing transactions (commonly referred to as the “repo book”); (ii) banknote documents that are subject to deposits and asset deposits on the securities dataset; and (iii) to keep copies of the confirmations it issues with respect to pension transactions.
Commentators have generally supported the amendments to Article 17 bis-3 and the Commission has decided to adopt the proposed amendments to ensure liability for funds and securities participating in repurchase transactions. Reverse repurchase agreements (RRPs) are the end of a pension purchase agreement. These financial instruments are also called secured loans, buy-back/sale loans and loans for sale/buyback. Some commentators have suggested that the reverse deduction for the pension deficit is similar to that proposed for pension deficits. 12 Under the proposal, the broker would not deduct the entire pension deficit, as it would be a reverse pension deficit. The proposal would only require a deduction if the pension deficit exceeds certain restrictions. The Commission has thus designed the pension deficit deductions so that brokers generally provide excess securities in the form of a “pillow” or margin as part of a repo.