A repo agreement in which a special collateral (SC) is posted by the borrower as requested by the lender, who has the right to specify a particular security as the only eligible collateral. The interest rate on such a repo is referred to as special repo rate. The need for a special collateral (or simply, a special or special security) arises from the fact that under specific circumstances, a market participant may need to obtain a specific security to cover an position already taken in the same security. For example, a dealer who has taken a short position in treasury notes (series A) may need to cover this position by lending cash against the same type of T-notes, and use the borrowed security for that purpose. In that sense, it would not be practical to use any generic security other than the special type that carries a desired set of features.
Finance
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