Difference Between Repo and Simultaneous
The difference between repo and simultaneous is that the simultaneous transmits the availability of the title and the repo does not.
Repos and simultaneous are financial operations that consist of the purchase/sale of certain securities with the agreement to repurchase/resell them after a period of time. That is, two operations of opposite sign concur with different execution dates.
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.
Simultaneous ones are very useful due to the characteristic that differentiates them from repos. And it is that, 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, go short in a fixed-income transaction without having the title available, so they buy simultaneously for short periods of time to have the title and short another title that have in portfolio.
Therefore, one of its purposes is that entities can take short positions on their treasury tables.
Usefulness of repos
The repos must be carried out only with clients, and do not allow the transfer of the title in their balance . The above is so, because they are configured to avoid counterparty risk and at the end date of the repo the client will never have sold it at maturity.
Next, the scheme of purchase/sale flows of a repo/simultaneous is explained:
- The buyer of a repo/simultaneous: Is the one who receives the financial asset on its balance sheet (remember that repos do not transfer the title, there is simply an entry in the account) and as consideration delivers cash in exchange. It is an investment operation, because once the final date of the repo (maturity) arrives, the buyer of the repo will receive the cash plus interest.
- The seller of a repo/simultaneous: Is the one who delivers the financial asset (remember that repos do not transfer the title, there is simply an entry in the account), and as consideration receives cash. It is a financing operation, because once the final date of the repo arrives, the seller must return the cash received plus interest.