Types of Operations
Several types of operations may be conducted:
1. Single transactions
In which the transaction is one way only. Securities are sold along with all the rights attached: coupon payment, redemption value, etc. Debt is considered transferred to maturity, allowing the new owner to transact in it freely on the secondary market under any authorised format. Single operations can be:
- Spot transactions: settlement takes place within the five business days following the transaction date.
- Forward transactions: settlement takes place after the fifth business day following the transaction. The key elements of each operation (price agreed, execution date, nominal value, effective value, etc.) must be notified to the Bank of Spain and may not be modified thereafter.
2. Double, or buy-back transactions
When contracting parties simultaneously agree two single transactions, a buy and a sell, one spot and the other forward or both forward. The buyer in the first transaction will be the seller in the second and vice versa. These are firm transactions, with the sale and repurchase price previously agreed at a gien date. This buy-back arrangement entitles the holder of the asset to collect coupon payments on maturity. Double operations can be divided into:
- Ordinary repos or "simultáneas": both buying and selling transactions refer to the same type of instrument and are for the same nominal value. The buyer can transact freely with the securities purchased, regardless of the buy-back date set.
- Blocked or "Spanish" repos: the difference vs. ordinary repos is that the securities are not transferred to all effects and, as such, buy-back transactions can only take place up to the date set for their return. The buyer, however, is entitled to collect coupon payments falling due in the interim. This kind of repo cannot be traded on the blind market
3. Stripping and Reconstitution
Linked to Bonos del Estado and Obligaciones del Estado strips.
Stripping takes place when a strippable bond is withdrawn from the Book-Entry System and replaced by new securities with an implicit yield arising from the cash flow generated by the same bond's coupons and principal.
Reconstitution is the reverse process, i.e. all the outstanding securities with an implicit yield arising from the different cash flows of a strippable bond are withdrawn from the Book-Entry System and replaced by the bond itself.
Stripping and reconstitution transactions can only be processed by strippable debt Market Makers, who take on a series of commitments subject to annual review. Strip and reconstitution orders must be for a minimum nominal amount of 500,000 euros, while additional amounts must be multiples of 100,000 euros.
Public Debt Market Members who are not authorised to process strip and reconstitution orders, and agents who are not market members, may only hold stripped securities by acquiring them from the institutions authorised to strip. By the same token, they can only replace the stripped securities in their possession with strippable bonds if they sell the former and buy the latter, but may under no circumstances reconstitute.