not trade frequently, there is considerable difficulty in obtaining a price at which to mark a position to market.   Delivery of the Collateral One concern in structuring a repurchase agreement is delivery of the col- lateral to the lender. The most obvious procedure is for the borrower to actually deliver the collateral to the lender or to the cash lenders clearing agent. If this procedure is followed, the collateral is said to be "delivered     out." At the end of the repo term, the lender returns collateral to the bor- rower in exchange for the repurchase price (i.e., the amount borrowed plus interest). The drawback of this procedure is that it may be too expensive, par- ticularly for short-term repos (e.g., overnight) owing to the costs associ- ated with delivering the collateral. Indeed, the cost of delivery is factored into the repo rate of the transaction in that if delivery is required this translates into a lower repo rate paid by the borrower. If delivery of col- lateral is not required, an otherwise higher repo rate is paid. The risk to the lender of not taking actual possession of the collateral is that the bor- rower may sell the security or use the same security as collateral for a repo with another counterparty. As an alternative to delivering out the collateral, the lender may agree to allow the borrower to hold the security in a segregated customer account. The lender still must bear the risk that the borrower may use the collateral fraudulently by offering it as collateral for another repo trans- action. If the borrower of the cash does not deliver out the collateral, but instead holds it, then the transaction is called a hold-in-custody repo (HIC repo). Despite the credit risk associated with a HIC repo, it is used in some transactions when the collateral is difficult to deliver (e.g., whole loans) or the transaction amount is relatively small and the lender of funds is comfortable with the borrowers reputation. Investors participating in a HIC repo must ensure: (1) they transact only with dealers of good credit quality since an HIC repo may be per- ceived as an unsecured transaction and (2) the investor (i.e., the lender of cash) receives a higher rate in order to compensate them for the higher credit risk involved. In the U.S. market, there have been cases where dealer firms that went into bankruptcy and defaulted on loans were found to have pledged the same collateral for multiple HIC transactions. Another method for handling the collateral is for the borrower to deliver the collateral to the lenders custodial account at the borrowers clearing bank. The custodian then has possession of the collateral that it holds on the lenders behalf. This method reduces the cost of delivery because it is merely a transfer within the borrowers clearing bank. If, for