I am trying to better my understanding on mechanics of repo and how counterparty exposure changes after a repo transaction.If a hedge fund XYZ has $100mm bonds (priced at par) with JPMorganand later XYZ repos out $80mm of the bond to Citibank and receives $75mm after haircutBefore the repo, JPMorgan statement will show $100mm worth of bond.Q1. Does XYZ instruct JPMorgan to deliver $80mm bonds to Citibank as part of repo transaction?Q2. How do the statements look after the repo is done?Will JPMorgan stmt show $20mm bondAnd Citibank show$80mm bond$75mm repoQ3. Along the same lines, what is the counterparty exposure to JPM and Citibank post repo?JPMorgan $20mm [if JPM defaults, only $20mm bonds will be stuck with them?]Citibank $80mm - $75mm = $5mm [if Citi defaults, $5m will be stuck with them?]Thanks in advance.

QuoteOriginally posted by: manmeetI am trying to better my understanding on mechanics of repo and how counterparty exposure changes after a repo transaction.If a hedge fund XYZ has $100mm bonds (priced at par) with JPMorganand later XYZ repos out $80mm of the bond to Citibank and receives $75mm after haircutIs this on a PB account?

Yes. Does it matter though?thanks.

And I guess related question is - in this example does JPMorgan lend the bond to Citibank or does JPMorgan transfer the ownership (Sell) to Citibank.

Not sure that I have understood your question If the issuer of the bonds is JPMorgan, then the answer below should be valid:Q1:JPMorgan does not care where its bond is going. The bonds are physically given to CitiBank, and CitiBank takes responsability to deliver to XYZ immedaitely, whatever interest the bond provides during its ownership by CityBank. If XYZ defaults (no cash back of 80 mm), Citibank stays with the bonds and starts cashing interest coming from them.