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

The following Banking & Finance practice 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
  • For the bank
  • For the trader
  • Risks for parties entering into commodity repos
  • The courts’ approach
  • Intention of the parties
  • Transfer of title
  • Evidence of title
  • More...

Commodity repurchases (repos) are a common alternative method of financing. There are a number of advantages for both the financier and a commercial party like a 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.

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 'buyer' during the course of a commodity repo, the parties are referred to as the 'trader' and the 'bank' in this Practice

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