It is widely known that repurchase agreements ("repos") are regularly used by market participants as a mean to fund long/short positions in a certain asset, in particular for derivative hedging purposes. For example, in page 16 of their white paper Understanding repos and the repo market (2009), Euroclear explains how a dealer can fund a long position in a bond:
1. A dealer buys a bond in an outright purchase from the cash market. [...]
2. The dealer offers the bond as collateral to the repo market and uses the cash proceeds to pay for the outright purchase of the bond in the cash market.
My question is about the operational aspects of such a transaction, in particular its simultaneous aspect:
- Is this particular operation only possible when both the purchase and the repo are done with the same party?
- Are these kind of operations executed through some custodian agent that settles both cash and repo transactions, hence allowing it to cross-settle this kind of operation?
- Do settlement lags enable this sort of operation, in that outright purchases take more time to settle than repos, thus allowing to receive the repo's cash in the meantime?
- Or is the above merely an "illustrative description", and in practice this kind of operations amounts to margin trading?