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Abstract
For the derivatives lawyer, the difference between a repo and a stock loan is significant. In a repo, the seller - the party transferring securities - usually receives cash in exchange. The seller compensates the buyer for the use of this cash during the life of the repo. This compensation takes the form of a differential between the purchase price and the repurchase price. In a stock loan, the borrower needs the securities to fulfill a particular purpose. Usually the purpose is to meet delivery on a short sale; that is, the borrower has sold securities that it does not hold and uses the "borrowed" securities to meet delivery on that short sale rather than buy securities in the market. The need to borrow the securities for a particular purpose also gives rise to 2 other distinctions between a repo and a stock loan, one being that in a stock loan, the borrower will be specific about the securities to be borrowed to ensure that they meet the purpose for which they are being borrowed. In a repo, the securities are sold to the buyer primarily to provide some assurance that the seller will perform its obligation to pay the repurchase price on the repurchase date.