in Chap- ter 12. The main difference between a total return swap and a repo is that the former is governed by the International Swap Dealers Associa- tion (ISDA) agreement as opposed to a repo agreement. This difference is largely due to the way the transaction is reflected on the balance sheet in that a total return swap is recorded as an off-balance sheet transac- tion. This is one of the main motivations for entering into this type of contract. The transaction works as follows:   1. the institution sells the security at the market price 2. the institution executes a swap transaction for a fixed term, exchanging the securitys total return for an agreed rate on the relevant cash amount 3. on the swaps maturity date the institution repurchases the security for the market price   In theory, each leg of the transaction can be executed separately with different counterparties; in practice, the trade is bundled together and so is economically identical to a repo.     THE UNITED KINGDOM GILT REPO MARKET   Trading in UK gilt repo market began on January 2, 1996. Prior to this, securities lending in the gilt market was available only to gilt-edged Market Makers (GEMMs), dealing through approved intermediaries, the Stock Exchange Money Brokers (SEMBs).12 The introduction of Gilt Repo allowed all market participants to borrow and lend gilts. The market reforms also liberalized gilt securities lending by removing the restrictions on who could borrow and lend securities, thus ensuring a "level playing field" between the two types of transaction. The market grew to about £50 billion of repos and securities lend- ing outstanding in the first two months, further growth took it to nearly £95 billion by February 1997, of which £70 billion was in repos. This figure fell to about £75 billion by November 1998, compared with £100 billion for sterling certificates of deposit (CDs). Data collected on turn- over in the market suggest that average daily turnover in gilt repo was around £16 billion through 1999. Gilt repo has developed alongside growth in the existing unsecured money markets. There has been a visible shift in short-term money mar- ket trading patterns from unsecured to secured money. According to the Bank of England, market participants estimate that gilt repo now accounts for about half of all overnight transactions in the sterling money markets. The repo general collateral (GC) rate tends to trade below the interbank rate, on average about 10-15 basis points below, reflecting its