Matched Sale-Purchase Agreement (MSPA)

Matched Sale-Purchase Agreement (MSPA)

In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually less than two weeks. In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually less than two weeks. The purpose of a matched sale-purchase agreement is to slightly prohibit market liquidity for the term of the matched sale-purchase agreement. Matched sale-purchase agreements contract the economy and are the opposite of repurchase agreements, which expand the financial supply by putting money reserves into the country's economy. Matched sale-purchase agreements contract the economy and are the opposite of repurchase agreements, which expand the financial supply by putting money reserves into the country's economy.

In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country.

What Is a Matched Sale-Purchase Agreement (MSPA)?

In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually less than two weeks. The security is bought back at the same price at which it was sold and decreases banking reserves during the term of the matched sale-purchase agreement.

This calculated agreement is also known as a "system MSP."

In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country.
Under the MSPA, the contractual agreement then outlines that the Federal Reserve would purchase the security back within a short period of time for the same price at which it was sold to temporarily decrease banking reserves.
A matched sale-purchase agreement is rarely used but is a method of temporarily decreasing reserves and securities holdings, and is done to slightly prohibit market liquidity for the term of the matched sale-purchase agreement.
Matched sale-purchase agreements contract the economy and are the opposite of repurchase agreements, which expand the financial supply by putting money reserves into the country's economy.
This financial arrangement is different than the standard open-market operations (such as selling Treasuries to investors), in that actions by the Federal Reserve make permanent changes to banking reserves and securities levels.

Understanding Matched Sale-Purchase Agreements (MSPAs)

Ultimately, matched sale-purchase agreements are a rarely-used method of temporarily decreasing reserves and securities holdings, done when country governments have limited options. The purpose of a matched sale-purchase agreement is to slightly prohibit market liquidity for the term of the matched sale-purchase agreement.

Since matched sale-purchase agreements occur over short periods of time, they are employed as short-term options for stabilizing a market. This financial arrangement is different than the standard open-market operations (such as selling Treasuries to investors), in that actions by the Federal Reserve make permanent changes to banking reserves and securities levels.

Matched Sale-Purchase Agreements vs. Open Market Operations

Related terms:

Aval

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Avalize

To avalize is the act of having a third party guarantee the obligations of a buyer to a seller per the terms of a contract. read more

Bank Of Canada (BOC)

The Bank Of Canada is the central bank of Canada. It influences the country's economy and money supply.  read more

Easy Money

Easy money is when the Fed allows cash to build up within the banking system in order to lower interest rates and boost lending activity. read more

Federal Funds Rate

The federal funds rate is the target interest rate set by the Fed at which commercial banks borrow and lend their excess reserves to each other overnight. read more

Federal Reserve System (FRS)

The Federal Reserve System is the central bank of the United States and provides the nation with a safe, flexible, and stable financial system. read more

Fed Pass

A Fed pass happens when the U.S. central bank increases the availability of credit by creating additional reserves in the banking system. read more

Federal Open Market Committee (FOMC)

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines the direction of monetary policy. read more

Open Market Operations (OMO)

The Federal Reserve uses open market operations (OMO) to achieve the target federal funds rate it has set by buying or selling U.S. Treasuries. read more

Purchase and Resale Agreements (PRAs)

Purchase and Resale Agreements (PRAs) are a monetary policy operation by the Bank of Canada intended to improve liquidity in the money market. read more