Repos rising

Author: | Published: 1 Aug 2007

In 2005 and 2006, a series of amendments to the US Bankruptcy Code and the US banking laws clarified the treatment of derivatives, securities lending, and repurchase transactions, especially the scope of the safe harbour provisions available to creditors in these transactions. The amendments provide that a party to a qualifying transaction that is covered by the safe harbour provisions may exercise its rights to terminate the transaction, net out or set off all amounts owing in connection with the transaction, and foreclose or liquidate any collateral securing the transaction, all without regard to a bankruptcy or receivership of the counterparty to the transaction (including any automatic stay of proceedings that might otherwise limit creditors' ability to realize on the assets of the bankrupt or insolvent counterparty).

Given the increased number of financial contracts now covered by the safe harbour provisions, there is much...