The basic process of pledged repurchase is: the fund company will hand over its securities to the repurchase merchants by pledge, and agree on the repurchase period and interest rate according to the agreement. The repurchase period is usually short, usually no more than seven days, and the repurchase rate is low, which is usually better than the market interest rate in the same period. After the repurchase expires, the repurchaser pays the principal and interest to the fund company, and the fund company redeems the pledged securities. If the repo man fails to fulfill his obligations according to the agreed time, the fund company can sell pledged securities to obtain funds within the agreed time limit to avoid market risks.
For fund companies, pledged repo can reduce financing costs, improve the efficiency of capital use and increase the flexibility of asset transfer. However, due to the limited number and types of pledged securities, if the value of pledged securities falls, fund companies need to add pledges or find other financing channels. In addition, if the buyer defaults or risks, the fund company may face financial risks and need to control the risks.
In short, although fund pledged repo is a low-risk, efficient and fast financing method, it also needs fund companies to carefully assess risks and grasp market changes, strengthen risk management and ensure the stable operation of funds.