For a non-repurchase agreement from the repo contract date to the repurchase date, return of profits, marking to market, exchange of bonds and substitution of bonds are conducted.
A repo buyer should return the coupon payments during the repo term to the counterparty. The profit should be returned on the day of profit payment. If the day is a trading holiday, the return is made on the next trading day with accrued interests. KRX receives the profit after a withholding tax from the buyer and hands in it to the seller.
Marking to market is charging an additional margin after calculating daily the net exposure for all agreements of non-repurchase between counterparties. in order to guarantee settlement of repo trade. Thanks to marking to market, risks of bond price fluctuation can be lowered and the bonds maintain a certain level of value as collateral.
If a cause as below occurs, a buyer may request an exchange of bonds for other issues from a seller, and the seller should agree on the exchange.
A seller may substitute the corresponding bonds for other issues with consent of a buyer. Since the risk level of the original bonds and those to be replaced for has to be the same, substitutable bonds are limited to those in same classification.
Substitution of bonds is allowed only when the buyer agrees on the contract made by bidding quotations for unspecified issues (General quotations). Moreover, to ensure stability of a repo contract, substitution of bonds is allowed just once per contract from the following day of the settlement to the previous day of the repurchase date.