Not Required Element in Repurchase Agreement - CRCM Exam | ABA

D

A repurchase agreement, also known as a "repo," is a type of short-term borrowing where a dealer (such as a bank) sells securities to a counterparty (such as an investor) and agrees to buy them back at a later date at a slightly higher price, which represents the interest earned on the loan.

To answer the question, we need to determine which of the elements listed is NOT required in a repurchase agreement between a bank that is a government securities dealer and a counterparty.

A. A statement that the funds are not insured by the FDIC This statement is typically included in a repurchase agreement to inform the counterparty that the funds they are lending are not insured by the FDIC. This means that if the bank defaults on the agreement, the counterparty may not be able to recover their funds. Therefore, this statement is typically required in a repurchase agreement.

B. A list of the specific securities that are the subject of the agreement A list of the specific securities that are the subject of the agreement is typically required in a repurchase agreement to ensure that both parties are aware of which securities are being sold and repurchased. This helps to prevent any confusion or misunderstandings about the terms of the agreement.

C. A provision for substitution of securities if they can be substituted A provision for substitution of securities if they can be substituted is also typically included in a repurchase agreement. This allows the dealer to substitute securities of equal or greater value if the original securities become unavailable or unsuitable for any reason.

D. A statement that the bank is a regulated government securities dealer A statement that the bank is a regulated government securities dealer is not typically required in a repurchase agreement. However, it may be included to provide additional assurance to the counterparty that the dealer is qualified to engage in government securities transactions.

Therefore, the answer to the question is D - a statement that the bank is a regulated government securities dealer is NOT required to be in a repurchase agreement between a bank that is a government securities dealer and a counterparty.