A repo agreement in which the lender of cash accepts any securities that are not special in the market and may be used to collateralized cash loans (collectively known as general collateral or for short as GC). In other words, the lender of cash (such as a bank, mutual fund, asset management fund, etc) is usually keen to earn interest income while limiting counterparty risk. Therefore, it chooses a class of securities that can be quickly and easily liquidated at a low transaction cost and without being exposed to an adverse price movement. Examples of general collateral securities include Treasury bonds and notes, mortgage-backed securities, agency-sponsored securities, etc. In general, government securities are highly marketable and default-free, and thus they are preferred by lenders in the repo market.
This repo is driven by the need for cash, where the seller of securities uses the cash proceeds to finance its immediate requirements and the buyer lends cash, based on a class of security issues that are equally eligible as collateral, at an identical or approximate repo rat (e.g., government securities that bear similar degree of risk).
This type of repo is also known as general collateral repo (GC repo).
