What is a Sale and Repurchase Agreement (SRA)?
A Sale and Repurchase Agreement (SRA) is an open market operation, implemented by the Central Bank of Canada, that is designed to affect overnight interest rates and modify the supply of money.
Understanding Sale and Repurchase Agreements (SRA)
An SRA is implemented when the Bank of Canada sells securities to a chartered bank and agrees to repurchase them the following day.
This is a contradictory move by the Bank of Canada on the monetary system, since selling these securities requires the chartered banks to spend some cash, thereby reducing the money supply and increasing interest rates.
How Sale and Repurchase Agreements Work
According to the Bank of Canada, "Overnight Repo and Overnight Reverse Repo operations are offered to eligible participants at the Bank of Canada’s discretion to reinforce the target for the overnight rate. Offerings by the Bank of Canada are subject to pre-specified limits for each eligible participant, as well as an aggregate limit per offering on any single day.
Overnight Repo and Overnight Reverse Repo operations will normally be conducted at 11:45 a.m. (Ottawa time) with a deadline of 12 p.m. for participants to submit tenders. The Bank of Canada reserves the right to conduct these operations earlier or later in the day—with an approximate 15-minute tender submission deadline to be set by the Bank of Canada—and to conduct multiple operations in a given day, if necessary.
Tenders must specify a bid or offer rate and an amount on a cash-value basis. Each counterparty can submit a maximum of two tenders.
The minimum bid rate on cash for Overnight Repo operations is equal to the Bank of Canada target for the overnight rate.
The maximum offer rate on cash for Overnight Reverse Repo operations is equal to the Bank of Canada target for the overnight rate.
Bid and offer rates must be submitted on a yield basis, up to two decimal places.
Tender amounts are subject to maximum allocation limits. The minimum tender amount is $10 million, with minimum increments of $1 million.
The Bank of Canada reserves the right to accept or reject any or all bids, in whole or in part, including, without limitation, the right to accept less than the total amount specified ahead of the auction.
Tenders with the highest bid rate will be accepted and allocated first. Tenders with successively lower bid rates will continue to be accepted until the total amount of cash to be provided by the Bank of Canada reaches the amount on offer and the auction is completely allocated."