A repurchase agreement (repo) is a transaction where Party A sells securities to Party B for cash, agreeing to repurchase them later at a higher price. The price difference represents interest on the cash loan. While economically functioning as a secured loan, repos are legally structured as sales which is a distinction that matters for bankruptcy proceedings. As the manual notes: repo counterparties can seize collateral without court involvement.
This 70-page 2005 Lehman Brothers manual served as a training guide for Lehman's repo sales force. The document provides detailed operational procedures for executing repo transactions at one major dealer before the 2008 financial crisis.
The manual states that estimated U.S. repo market volume was $1.6 to $3.8 trillion per day as of June 30, 2003, citing the Federal Reserve Bank of New York. It describes repos as "the primary instruments used by U.S. broker-dealers to finance their inventory positions."
Lehman organized clients into five creditworthiness tiers with detailed haircut schedules:
This meant investment-grade securities could be financed up to 98% of value (with a 2% haircut) for creditworthy clients, while lower-tier clients faced significantly higher collateral requirements.
The operational complexity is documented throughout. Three separate booking systems handled different products: MTS for FI-Financing, Options, and Forwards; ITS for FI-Financing; and Infinity as a front-end booking system. Settlement flowed through multiple channels: Fed Wire for Treasuries and Agencies, DTC for corporates and mortgages, and tri-party arrangements where both parties used the same bank. The manual includes actual blank ticket templates showing fields for account numbers, ISINs, nominal amounts, and settlement instructions.
The matched book section explains:
The term Matched Book is used when a dealer seeks to create liquidity in the Repo market by borrowing and lending specific securities (entering into Reverses and Repos) for specific periods of time based on the dealer's view of interest rates.
The manual describes this as a profit-center vehicle which generates revenue off fluctuations in interest rates.
The distinction between general collateral (the universe of securities eligible for repurchase agreements) and specials (any security which is asked for by coupon and maturity) appears throughout. Specials commanded different rates because they were
...needed in order to cover a short or to facilitate a delivery on a sale transaction.
Daily mark-to-market and margin procedures were mandatory and margin calls were expected to be met daily with specific timing
The customer should be contacted by sales no later than 10:00AM and margin call should be met by 3PM the same day in MTS.
Failure to meet calls had consequences
Lehman must protect itself and therefore if margin calls are not met timely Lehman will have to liquidate all the financed positions.
The manual explicitly warns about leverage risk
A person can lose not only the initial money (haircut amount) required to purchase an asset but is responsible up to the total amount of the asset being financed.
What can a 2005 operations manual tell us about developing systematic trading strategies today? The document itself provides no trading strategies or systematic models. It is an operational handbook focused on processing trades, managing collateral, and handling settlements. The manual documents several market mechanics that existed in 2005.
The general collateral versus specials distinction created rate differentials. The manual states specials enabled "the owner of the bonds to generate cash at below-market rates of interest" when specific securities were in demand. Whether this relationship persists today would require current market data.
The manual describes Federal Reserve operations, noting two types: System repos (typically an overnight Repo is viewed by market participants as the tool used by the New York Fed to manage U.S. monetary policy) and Customer repos (executed on behalf of its customers, such as foreign central banks). The manual states these were usually announced in advance.
Collateral substitution rights are documented. Dealers preferred to have the right to change the collateral pledged to the investor while the repo was outstanding. This gave the dealer the flexibility to use the collateral for alternative uses.
The term structure of repos is discussed. Repos could be executed for any term up to one year with the largest concentration of repos maturing within three months. The manual provides no data on term premiums or rate relationships.
The manual contains no discussion of:
These are not oversights as these concepts probably didn't exist or weren't primary concerns in 2005. The manual assumes normal market functioning where collateral can be valued and liquidated according to established procedures.
The document describes Lehman Brothers' specific practices not industry-wide standards. Other dealers may have used different haircuts, systems, or procedures.
For practitioners considering systematic strategies, the manual offers a historical framework for understanding repo market structure rather than actionable trading insights. It documents how one major dealer organized its repo operations—the client tiering system, the operational infrastructure, the risk management procedures. Understanding these historical practices provides context for how repos functioned before modern regulatory reforms, but translating this into current trading strategies would require extensive additional research and current market data that this manual cannot provide.
The Lehman manual remains valuable as a primary source documenting pre-crisis market practices. It shows in granular detail how trillions of dollars moved daily through repo markets, the operational complexity underlying seemingly simple transactions, and the risk management practices of a major dealer. As a historical artifact, it helps us understand what has changed and why—essential context for anyone working in modern repo markets, even if the specific procedures and parameters no longer apply.