Commodity repo transactions and true sale considerations
Produced in partnership with Sullivan
Commodity repo transactions and true sale considerations

The following Banking & Finance guidance note Produced in partnership with Sullivan provides comprehensive and up to date legal information covering:

  • Commodity repo transactions and true sale considerations
  • What is a commodity repo?
  • Advantages of commodity repos
  • Risks for parties entering into commodity repos
  • Transfer of title
  • Jurisdictional issues
  • Ownership issues
  • Documentation

Commodity repurchases (repos) are an increasingly popular alternative method of financing. There are a number of advantages for both the financier and the trader in entering into commodity repos but the parties will need to do the appropriate legal and accounting due diligence and carefully check the wording of the documentation to ensure that the desired outcomes will be achieved.

What is a commodity repo?

Put simply, a commodity repo involves the sale of a commodity from one party (a seller) to another (a buyer) which is accompanied by a 'forward sale' under which the seller will repurchase the commodity from the buyer at a future date. Commodity repos can be used as an alternative method of financing.

There are a number of variations that a commodity repo structure can take; for example, the seller may have an obligation or an option to repurchase the commodity in the future, or the seller may act as a 'service provider' to monitor the commodity after it has been sold to the buyer and deal with collections. This Practice Note looks at the various structures that can be adopted and the advantages and risks for each party in entering into these types of transactions.

Since each party is at one time or another a 'seller' and a 'purchaser' during the course of a commodity