During 2005 the bases for developing the repo market in the Republic of Macedonia were set by adopting the new rules for trading and settlement on the OTC market and by preparing General Repo Agreement as a unified legal framework for concluding repo transactions between markets participants, according to which conclusion of repo agreements with all short-term securities is envisaged. At the same time, these new rules set the basis for performing monetary operations through concluding repo transactions by the National Bank of the Republic of Macedonia.
Repo is an agreement for instant (prompt) sale of securities with an obligation for their repurchase, or an agreement for instant (prompt) purchase of securities with an obligation for their resale on a future date at a predetermined price.
The introduction of repo transactions in the Republic of Macedonia started with the activities related to setting the bases of the over-the-counter markets as a competitive framework for trading and settlement of securities with low transaction costs. In addition, trading on the over-the-counter markets is based on a listing system, where the existing connections between the payment system MIPS, the banks and the Central Securities Depository – CSD are used for settlement of the concluded transactions, thus providing settlement in real-time, with applying the principle of “delivery versus payment”.
Repo operations are a flexible instrument for liquidity management that allows cheaper and more secure lending of funds by banks and other financial institutions comparing to unsecure (uncollateralized) trading. The flexibility of this instrument steams from the ability to quickly and safely convert cash into securities and vice versa.
Repo transactions play a significant role in the performance of monetary operations by central banks. In the Republic of Macedonia, as part of the open market operations, NBRM through auctions of repo transactions, manages the liquidity of the banking system in conditions of short-term changes in liquidity.