Sale and Repurchase Agreement (SRA)

What is a Sale and Repurchase Agreement (SRA)?

A Sale and Repurchase Agreement (SRA) is a open market operation, executed by the Central Bank of Canada, that is intended to influence overnight interest rates and change the supply of money.

Figuring out Sale and Repurchase Agreements (SRA)

A SRA is carried out when the Bank of Canada offers securities to a chartered bank and consents to repurchase them the next day.

This is a problematic move by the Bank of Canada on the monetary system, since selling these securities requires the chartered banks to spend some cash, subsequently diminishing the money supply and expanding interest rates.

How Sale and Repurchase Agreements Work

As per the Bank of Canada, "Overnight Repo and Overnight Reverse Repo operations are offered to eligible participants at the Bank of Canada's tact to support the target for the overnight rate. Offerings by the Bank of Canada are subject to pre-indicated limits for each eligible participant, as well as an aggregate limit for every offering on any single day.

Overnight Repo and Overnight Reverse Repo operations will typically be conducted at 11:45 a.m. (Ottawa time) with a cutoff time of 12 p.m. for participants to submit tenders. The Bank of Canada reserves the right to conduct these operations prior or later in the day — with a surmised 15-minute tender submission cutoff time to be set by the Bank of Canada — and to conduct various operations in a given day, if fundamental.

Tenders must indicate a bid or offer rate and an amount on a cash-esteem basis. Each counterparty can present a maximum of two tenders.

The base bid rate on cash for Overnight Repo operations is equivalent to the Bank of Canada target for the overnight rate.

The maximum offer rate on cash for Overnight Reverse Repo operations is equivalent to the Bank of Canada target for the overnight rate.

Bid and offer rates must be submitted on a yield basis, up to two decimal spots.

Tender amounts are subject to maximum allocation limits. The base tender amount is $10 million, with least additions of $1 million.

The Bank of Canada reserves the right to acknowledge or dismiss any or all bids, in whole or in part, including, without limitation, the right to acknowledge not exactly the total amount determined ahead of the auction.

Tenders with the highest bid rate will be accepted and allocated first. Tenders with progressively lower bid rates will keep on being accepted until the total amount of cash to be given by the Bank of Canada arrives at the amount on offer and the auction is totally allocated."