The collateral required in a repo over and above the cash lent out. The holder of the collateral is subject to market risk. If interest rates rise during the repo period, the value of the bond/collateral will fall. The buyer could own securities with a market value less than the amount loaned out. One way to address the market risk issue is that the amount loaned will be less than the market value of the securities being pledged. This difference is known as the margin or the haircut e.g. for a £10m bond and a haircut of 2% the seller will receive proceeds of £9,800,000. See Repurchase Agreement
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