No restriction is imposed on participation in REPO market for REPO trading made at OTC because it is made through a broker or directly between parties concerned, but those who are entitled to participate in the KRX REPO market are same as direct participants of KRX trading system for government securities so as to effectively support dealer financing and to promote link-trading like arbitrage trading between markets.
That is, securities members and bond members (banks) of KRX only are eligible for the REPO market, To participate in REPO market, every participant has to follow the following procedures : permission of bond dealing business by the FSC → admission of membership of the KRX → submission of agreement of REPO trading to the KRX → registration as trader → receipt of electronic authentication.
In addition, the government has also participated in the REPO market in line with the introduction of REPO trading for KTBs since June 2, 2003
The OTC market is accompanied by time and cost resulting from observation of quotation due to non-concentration of quotation information, and in order to improve such problem KRX REPO market adopts, as a standardized intra-market trading, an individual competitive trading (perfect competition trading) with multiple prices which aims to secure smooth contract trading and transparency of trading through concentration of quotations (only principle of price/time priority is applied without individual competitive trading with single price.).
Namely, quotations submitted by participants are collected in the screen of REPO trading system at the KRX as per price range and in the order of submission, and then trade execution is made according to perfect competition trading method by multiple prices.
Furthermore, designated buying quotations in the quotation book (Refer to terminology of intra REPO market ) shall compete selling quotations for same item, and non-designated buying quotations are able to compete all kinds of selling quotations. Trading shall be realized at repo rate of the preceding quotation if there comes an agreement between selling quotation at the highest repo rate and buying quotation at the lowest repo rate.
Generally speaking, contract price (= repo rate) in REPO market has a tendency to be formed higher than rediscount rate of BOK but lower than interest of unsecured short-term financial market (call rate). And start leg price is not changed for the period until repurchase date in spite of substitution/exchange of bonds. (Fixed repo rate).
As money to be paid by buyer to seller in consideration of trading bonds according to the contract, it is calculated through applying haircut to market value of the bonds. The money for trading mentioned here is a fund to be lent by a buyer to a seller and it shall be the calculation basis of repurchase interest, and the seller shall pay the same money back with repurchase interest to buyer on repurchase date.
In case of REPO trading of the KRX, market value of object bond shall be calculated on the basis of the price of a fair evaluation agency and a buyer of REPO (lender of money) is required to hold excess security according to haircut.
market value : As the value calculated on the basis of bond par value KRW10,000, this means the simple arithmetic average of evaluation value which is the result of re-calculation, with due regard to transition period until the application day, of return of the said bond to be announced by market value evaluation agency for evaluation of trading bonds and margin bonds.
haircut : As the discount rate for taking risk of price fluctuation during REPO transaction period, it means the ratio to be claimed by a buyer to a seller and it has function of initial margin.