Draw the two directions first
In the first leg, one party transfers securities and receives cash. In the second, a reverse transfer and corresponding payment occur under stated terms. The second-leg price, maturity, interim security payments and default actions are determined by documents. The first cash receipt cannot be analysed as irreversible income. The full linked sequence matters. If an intermediary organises or clears the trade, distinguish its role from the parties and from the issuer obligated on the security.
A fictional haircut and financing charge
In the educational model, transferred securities are worth 10,000 monetary units and the haircut is 10%. The amount provided is 9,000. The haircut creates a difference between asset valuation and cash, but it is not the financing interest rate. If the exercise specifies an annual rate of 8%, a 30-day term and a 360-day basis, the period charge is 60 and the reverse cash payment is 9,060. All parameters are fictional. A real contract may calculate differently, so these numbers are not an organisation’s tariff.
Collateral can require new cash
Suppose the securities’ value falls to 9,400 before accrued financing is considered, while the educational system still requires a 10% haircut. The supported cash amount at that valuation is 8,460. Compared with the original 9,000, a difference of 540 arises. In this simplified scheme it must be covered with additional resources or the obligation must be changed as permitted. This is a separate liquidity stress even if the initial financing appeared fully secured. Interest and other adjustments are deliberately excluded so the causes are not mixed.
The Bank of Russia describes revaluation and compensating contributions in its specific procedures.[22](#source-cm-repo) They cannot automatically be transferred to every contract: the form, thresholds, timing and substitution rights differ. The general question is what happens after market value changes and who must act. Collateral does not make an obligation free or guarantee that cash will not be needed quickly.
What risks remain
Review the counterparty, issuer of the security, its liquidity and the legal ability to exercise the relevant rights separately. If the asset deteriorates at the same time as the counterparty, the initial buffer may be less useful than expected. This is not an assessment of a particular participant; it is a reminder that risks can be linked. Clearing infrastructure also has defined functions; MOEX describes the role of a clearing organisation and performance security.[24](#source-cm-clearing) Such settlement organisation does not have to compensate every market-value change.
To check the structure, make a table for both legs: asset, cash, dates, price, rights to interim payments and obligations on revaluation. State separately which resources must be available before final completion. [OTC counterparty risk](/guides/otc-counterparty-risk/) explains the counterparty, [settlement route](/guides/exchange-and-settlement/) distinguishes agreement from performance, and [interest-rate risk](/guides/bond-rate-risk/) addresses changes in the security’s valuation. This material does not recommend repo to increase a position or confirm access to a service.
Check the two different percentages
The haircut answers the relationship between asset valuation and cash delivered; the financing rate answers the charge for time. Calling both “interest” makes it impossible to check the reverse-leg price and collateral buffer. Label both bases explicitly. Changing one parameter does not automatically change the other.
If the security pays a coupon during the repo term, the contract must establish who technically receives it and how it is accounted for between parties; do not silently treat it as one party’s independent profit. Likewise, a right to substitute collateral does not follow merely from holding a liquid security. These questions show the simple example’s limits; in a real analysis, both legs and all interim movements must form one consistent sequence.