A special collateral repo is an alternative to, and may be economically equivalent to, a stock loan collateralised by cash ( CFM17070). It is driven by the desire of a person to acquire particular securities for a limited period of time. In a special repo, the repo rate will be below the prevailing rate for general collateral repos. Indeed it may be negative so that the borrower of cash (the original owner of the securities) is actually being paid the equivalent of interest by the lender (interim holder). In special collateral repos, the repo functions like a stock loan. They may therefore form a useful source of income for holders of the relevant securities, such as life assurance companies, pension funds, banks and other financial institutions if they can invest the cash at a higher rate than the repo rate.
You may come across the term “reverse repo”. A reverse repo is the repo from the point of view of the interim holder. It is the purchase of securities for cash, but functions as a loan made by the purchaser at interest. So you will hear of bond dealers “reversing in” securities.
