Repurchase Agreement [Securities] Law and Legal Definition

Repurchase agreement or REPO is a transaction in which one party sells a security to another party while agreeing to repurchase it from the counterparty at some date in the future, at an agreed price. REPO allows traders to short-sell securities and allows the owners of securities to earn added income by lending the securities they own.

Repurchase agreements are deposits received in the ordinary and normal course of the banking business under the terms of which certain federal, state, or municipal obligations, held as investments by the bank, would be transferred hypothetically to a given purchaser. [New Mexico Bancorporation & Subsidiaries v. Commissioner, 74 T.C. 1342, 1346 (T.C. 1980)].