The same principle applies to rest. The longer the life of the pension, the more likely it is that the value of the security will fluctuate prior to the buyback and that economic activity will affect the supplier`s ability to execute the contract. In fact, counterparty credit risk is the main risk associated with rest. As with any loan, the creditor bears the risk that the debtor will not be able to repay the investor. Rest acts as a guaranteed debt, which reduces overall risk. And because the price of the pension exceeds the value of the guarantees, these agreements remain mutually beneficial to buyers and sellers. Rests are popular because they are simple and safe. Financial institutions such as banks, securities dealers and hedge funds do not have large amounts of cash available. They prefer to put all their money into work. If they need money in a hurry, they can turn to the pension market.
On the other hand, money funds have a lot of money. They are happy to lend money to the financial institution overnight for a small fee. However, despite regulatory changes over the past decade, systemic risks remain for repo space. The Fed continues to worry about a default by a major rean trader that could stimulate a fire sale under money funds that could then have a negative impact on the wider market. The future of storage space may include other provisions to limit the actions of these transacters, or may even ultimately lead to a shift to a central clearing system. However, for the time being, retirement operations remain an important means of facilitating short-term borrowing. While conventional deposits are generally credit risk instruments, there are residual credit risks. Although this is essentially a guaranteed transaction, the seller may not buy back the securities sold on the due date. In other words, the pension seller does not fulfill his obligation.
Therefore, the buyer can keep the warranty and liquidate the guarantee to recover the borrowed money. However, security may have lost value since the beginning of the operation, as security is subject to market movements. To reduce this risk, deposits are often over-insured and subject to a daily market margin (i.e., if the guarantee ends in value, a margin call may be triggered to ask the borrower to reserve additional securities). Conversely, if the value of the guarantee increases, there is a credit risk to the borrower, since the lender is not allowed to resell it. If this is considered a risk, the borrower can negotiate a subsecured repot.  Pension transactions (also known as rest) are carried out only with primary traders; Reverse-repurchase agreements (also known as “reverse-rest”) are implemented both with primary traders and with an expanded range of reverse pension counterparties, including banks, state-subsidized enterprises and money funds. A pension purchase contract, also known as repo, PR or Surrender and Repurchase Agreement, is a form of short-term borrowing, mainly in government bonds. The distributor sells the underlying guarantee to investors and, by mutual agreement between the two parties, buys it back shortly thereafter, usually the next day, at a slightly higher price. Despite the similarities with secured loans, deposits are actual purchases. However, since the purchaser only temporarily owns the guarantee, these agreements are often considered loans for tax and accounting purposes.
In the event of bankruptcy, pension investors can, in most cases, sell their assets. This is another difference between pension credits and secured loans; in the case of most secured loans, bankrupt investors would be subject to automatic stay. Although the transaction is similar to a loan and its economic effect is similar to a loan, the terminology is different from that of the loans: the seller legally buys the securities from the buyer at the end of the loan period.