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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Deemed loan relationships: repos: tax rules: creditor repos and creditor-quasi-repos

What are creditor repos and creditor quasi-repos?

A ‘creditor repo’ is a repo from the point of view of the lender, the company that purchases securities as collateral. The cash that this company pays, although legally a purchase price, equates in substance to a loan. Commercially, a repo from the point of view of the cash lender is known as a ‘reverse repo’. CFM46230 explains the conditions that must be met for such a ‘creditor repo’.

Like the ‘creditor repo’, a ‘creditor quasi-repo’ (CFM46240) is a transaction from the point of view of the lender. Like a debtor quasi-repo, it is intended to cover arrangements that are economically equivalent to standard repos but are on non-standard terms, so that they do not meet the definition of creditor repo. For instance:

  • The ‘lender’ has the original buyer’s rights and obligations under the repo novated to it. These include acquiring the securities, but as the lender has not bought them from the borrower, Condition C in the creditor repo definition (CFM46230) is not satisfied (even though the lender is entitled or obliged subsequently to sell the securities to the borrower).
  • The arrangement under which the securities are bought provides only for a person other than the lender to sell them back, with that other person at some point paying the original lender to assume its rights and obligations under the repo. In that case Conditions D and E in the creditor repo definition are not satisfied, since the financial asset will be extinguished not by the sale of the securities by the lender, but by payments under the contractual arrangement between the lender and the other person.