Lower repo rate if lender needs security

“Availability of collateral. Occasionally, some securities may be in short supply and difficult to obtain. In order to acquire these securities, the buyer of the securities (i.e., the lender of funds) may be willing to accept a lower rate. This situation typically occurs when the buyer needs securities for a short sale or to make delivery on a separate transaction. The more difficult it is to obtain the securities, the lower the repo rate.” (Institute 102) Institute, CFA. Level III 2013 Volume 4 Fixed Income and Equity Portfolio Management. John Wiley & Sons (P&T), 6/18/2012. vbk:9781937537364#page(102). Assuming the borrower holds up their end of the bargain, they will buy the securities back when the repo term ends. If the lender has delivered those securities to someone else, what do they do? Yank them back unceremoniously from the party they were delivered to? That would only work if the lender lent them for someone else’s short sale. How would that work “to make delivery on a separate transaction”?

Perhaps the lender will lend to someone else who will also put up those securities as collateral.

Peter: meet Paul.

For what it’s worth, knowing how a dealer/lender gets out of that predicament isn’t required by CFA Institute; I’d wait until June 2 to puzzle over it, and encourage you to do the same.

I am a little less motivated by exam considerations than most candidates here, being an old non-finance guy doing CFA to learn new things. So overall, your advice makes sense, but slightly less for my circumstances. Not that I want to fail Level III (knock on wood) but I don’t mind taking little detours to get more knowledge since I am under less pressure to pass than most people here.

I was fully motivated to pass all of the exams (and managed to do so each time I took one), but I’m with you: I like to know how things work and why.