## Central Clearing for Government Securities Repos: A CCP-Centric Perspective (Working Paper No. WP/2026/119) ## Source details **Canonical URL:** [Central Clearing for Government Securities Repos: A CCP-Centric Perspective (Working Paper No. WP/2026/119)](https://www.imf.org/-/media/files/publications/wp/2026/english/wpiea2026119-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2026/english/wpiea2026119-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2026/english/wpiea2026119-source-pdf.pdf.json) --- ### 1. Nature, systemic role, and scale of repos - Repurchase agreements (repos): - Involve sale of financial assets with commitment to repurchase at a set price on a future date; economically akin to short-term secured loans with legal-title transfer in many jurisdictions. - Mature mostly short-term (largely overnight in the US; slightly longer in the EU, UK), rarely exceed three months though longer terms are possible. - Documentation: ICMA GMRA typically based on title transfer; other jurisdictions may use pledge-based arrangements with differing insolvency and close-out implications. - Systemic importance and uses: - Major source of funding, cash management, and collateral transformation for banks and NBFIs. - Facilitate funding and hedging strategies across connected segments (e.g., derivatives markets). - Support bank market-making and liquidity provision in sovereign debt markets and assist management of balance sheet constraints and regulatory metrics (e.g., LCR). - Central banks use standing secured facilities in repo markets to inject/absorb liquidity and steer short-term rates, especially in market turmoil. - Size and measurement: - FSB estimate: government bond-backed repo markets for member jurisdictions amount to approximately USD 16 trillion in 2024. - Quantification is complicated by differing data collection; FSB figure may underestimate size due to limited country coverage. ### 2. Cross-jurisdictional diversity and prevalence of CCP clearing (selected indicators) - FMI landscape and market structure: - Central bank-dominated settlement in some jurisdictions (e.g., Japan, US); privately operated FMIs in others (e.g., EU). - Some jurisdictions use a single FMI, others multiple competing FMIs. - OTC bilateral repos coexist with organized triparty markets; triparty dominant in the US, less so in the EU. - Collateral universes differ: some markets limit to government securities (US, UK, India); others include high-quality corporate and ABS (many EU markets). - Central clearing availability varies (e.g., lack of repo clearing in Switzerland or Mexico vs. mandatory repo clearing in India). - CCP clearing prevalence for government bond-backed repos (YE 2025): - United States: FICC — Ca. 40% (Office of Financial Research 2025 data; FSB mentions lower proportions (<40%)). - Euro Area: Eurex, LCH SA, Euronext, BME — Ca. 50-60% (European Central Bank 2024 data; FSB: ca. 30%). - United Kingdom: LCH Ltd. — Ca. 23% (Bank of England 2025 data; FSB: ca.15%). - Japan: JSCC — Ca. 80% (ICMA 2020 data and WFE 2025 data; FSB :<60%). - India: CCIL — 100% (RBI SGL). - CCPs offering repo clearing services (status quo, focus on government securities repo clearing; YE 2025) — selected CCPs and home jurisdictions include: - LCH Ltd. / (RepoClear) — UK — Europe - Eurex Clearing (Eurex Repo Markets) — Germany — Europe - LCH SA / (RepoClear) — France — Europe - FICC / (Government Securities Division) — United States — Americas - JSCC / (OTC Japanese Government Bonds) — Japan — Asia - The Clearing Corporation of India Ltd / (Securities and Money Market Segment) — India — Asia - (Additional CCPs across Europe, Americas, Middle East, Africa and Asia listed in source.) ### 3. Drivers, impediments, and recent policy momentum for repo clearing - Drivers for renewed focus on central clearing: - Regulatory emphasis on transparency and resilience of repo markets. - Erosion of economic attractiveness of bilateral, uncleared OTC transactions due to increased margining; regulatory incentives push clients toward centrally cleared spaces. - CCP efforts to deepen liquidity via improved margining (cross-margining) and new membership models for NBFIs. - Planned introduction of a clearing mandate in the US and active discussions in Australia, the EU, and the UK. - Structural impediments to wider adoption: - Buy-side reluctance to abandon efficient, customizable bilateral repo markets. - Fragmented infrastructure (e.g., EU multiple competing platforms) limiting CCP depth and profitability. - NBFI cost-benefit and operational constraints; many NBFIs lack clearing membership capabilities. - Bilateral repos often cheaper with low or no haircuts requested. - CCPs traditionally bank-centric, limiting non-bank participation. ### 4. CCP mechanics and lessons from episodes of stress - CCP role and mechanics: - CCPs interpose as buyer to every seller and seller to every buyer, enabling multilateral netting, reducing liquidity needs, and centralizing risk management (net position and collateral calculations, settlement coordination, concurrent operational and risk processes). - Post-GFC and stress episodes underscoring repo systemic relevance: - September 2019 US repo rate spike driven by tax payments, withdrawal of cash providers, and strained broker-dealer balance sheets. - March 2020 Covid-19 “Cash for Dash” episode with large market stress and Federal Reserve intervention. - UK Gilt volatility after the September 2022 “mini-budget” that increased collateral calls and required central bank intervention. ### 5. Benefits of repo clearing via CCPs - Improved oversight and transparency: - Central clearing provides standardized risk management, centralized collateral management, and enforced margining, addressing minimal reporting in decentralized bilateral markets. - Systemic risk reduction: - Potential to improve liquidity in crisis, reduce information asymmetries, expand counterparty pools, and harmonize pricing/collateral via standard margin models and eligibility criteria. - Multilateral netting reduces gross exposures and facilitates more orderly default management. - Increased efficiencies: - For banks and broker-dealers: balance-sheet optimization via netting and cross-margining, lowering capital and liquidity costs. - For asset managers and buy-side: better execution, greater transparency, and stronger counterparty confidence in turmoil. - Cross-product offsetting examples: Eurex and FICC (in cooperation with CME) allow repos–fixed income derivatives margin offsets; LCH (LTD and SA) did not allow cross-product offsets for repos in 2025 though within-service offsets were permitted. - Innovation in access models: - Sponsored clearing and special access models target NBFIs, large corporates, central banks, supranationals, and DMOs to broaden participation without full member obligations. - Sponsored access typically: sponsoring clearing member establishes the legal relationship, supports CCP obligations, and may be required to provide operational support and default backstop. - As of YE 2025, many CCPs with repo clearing do not yet offer non-traditional access; those that do are concentrated in the most developed markets. ### 6. Key considerations for CCPs and authorities (access, default management, public sector role, interoperability) - Access-related considerations: - Objective: expand access while avoiding undue risks and complying with PFMI (notably Principle 1, Principle 18, Principle 19). - Requirements: sufficient margin, default fund contributions, legal certainty on sponsor guarantees; verify sponsor capacity to honor commitments in turmoil. - Design mitigants: require disclosure of clearing members’ pricing strategies; restrict client-clearing to banks while permitting sponsored clearing for others; enable CCP sanctioning of member behavior. - Default-management considerations: - Core challenge: manage defaults quickly given scale, speed, short maturities, and complex collateral flows. - Recommended toolkit: multiple default management tools (auctions with mandatory bidding, forced member auctions, direct portfolio transfers); avoid reliance on single tools. - Sponsor responsibilities: require sponsors to provide adequate support or pre-arranged contingency sponsors and porting arrangements. - Testing: regular default-management tests and cross-CCP simulations; consider mandatory participation in cross-border tests in jurisdictions with significant repo clearing. - Role of public authorities and market structure trade-offs: - Benefits of central bank/public participation: increased market confidence, diversification of membership, and smoother settlement via RTGS systems. - Risks and constraints: moral hazard, conflicts of interest, statutory limits, reluctance to participate in risk mutualization (default fund contributions, margin posting) because of bank–sovereign nexus. - Competition, interoperability, fragmentation: - Multiple CCPs can fragment liquidity and increase costs; bridges/interoperability can enable netting and collateral mobilization but are operationally and legally complex. - Well-designed interoperability requires legal, operational, and risk-management frameworks to avoid contagion and ensure reciprocal exposure handling and close-out procedures. - Policymakers should weigh mandating interoperability and monitor margining practices to prevent a competitive “race to the bottom.” *Source: IMF Working Papers — Central Clearing for Government Securities Repos: A CCP-Centric Perspective (Working Paper No. WP/2026/119).* ### 1. Introduction ........................................................................................................ ### 1. Introduction ### Nature and economic function of repos - Repurchase agreements (repos) involve the sale of financial assets (usually government securities) with a commitment to repurchase the asset at a set price on a future date. - Maturity is at the discretion of the parties, although the vast majority of repurchase agreements are short-term transactions. - Maturities will vary according to the respective market convention (e.g., largely overnight in the US, slightly longer terms in the EU, UK) but will rarely exceed three months. However, longer terms are possible. - Repos are economically akin to short-term secured loans but offer additional legal certainty and security to the cash lender via title transfer in many jurisdictions, enabling swift liquidation should the cash borrower default. - Repo contracts documented under the International Capital Market Association (ICMA) Global Master Repurchase Agreement (GMRA) are based on a title transfer structure; this characterization is not universal across jurisdictions, where domestic repo frameworks may instead rely on pledge-based arrangements or different insolvency treatments, with implications for close-out enforceability, asset segregation, and prudential and accounting outcomes. ### Systemic importance and uses - Repo markets are a major source of funding, cash management and collateral transformation for banks and other nonbank financial institutions (NBFIs). - Repos allow institutions with excess securities to borrow cheaply and others with excess cash to earn a small return with less risk than unsecured lending. - Repo markets are closely connected to other financial market segments (e.g., derivatives markets), facilitating funding and hedging strategies. - Repos support banks in financing portfolios of government and other high-quality securities at relatively low cost, helping banks serve as market makers and liquidity providers in sovereign debt markets. - Repos assist banks in managing balance sheet constraints and regulatory requirements, such as the Liquidity Coverage Ratio (LCR), by enabling quick asset-to-cash transformation. - Central banks intervene in repo markets (standing secured borrowing and lending facilities) to inject or absorb liquidity and steer short-term interest rates; this channel is especially relevant during market turmoil to provide emergency liquidity expeditiously and non-disruptively. ### Size and measurement - A recent FSB publication estimated the government bond-backed repo markets for its member jurisdictions to amount to approximately USD 16 trillion in 2024. - Quantifying the size of global repo markets is complicated due to differing data collection across jurisdictions; the FSB figure may underestimate the size because of limited country coverage. ### Cross-jurisdictional diversity in repo arrangements - The FMI landscape for repo transactions varies considerably across jurisdictions: - In some countries central banks play a dominant role in settlement of repo markets (e.g., Japan and the US). - Other jurisdictions rely on privately operated FMIs (e.g., the EU) where central bank involvement may be limited to indirect participation. - Market structures differ: - Some jurisdictions rely on a single FMI (often a CSD) while others feature multiple competing FMIs. - Many jurisdictions host both OTC bilateral repos and organized triparty repo markets; triparty is dominant in the US and comparatively less important in the EU. - In some countries, repo collateral is essentially limited to government securities (e.g., US, UK, India); in others, it may include high-quality corporate securities and asset-backed securities (e.g., many EU markets). - Availability and market adoption of central clearing for repos varies (e.g., lack of repo clearing in Switzerland or Mexico vs. mandatory repo clearing in India). - Access to repo clearing and settlement markets can be via local or international custodian banks. ### CCP clearing prevalence for government bond-backed repos (selected jurisdictions, YE 2025) - Defined as proportion of overall government bond-backed repo market that is centrally cleared by a CCP. - United States: FICC — Ca. 40% (Office of Financial Research 2025 data; FSB mentions lower proportions (<40%) but is less transparent on data used). - Euro Area: Eurex, LCH SA, Euronext, BME — Ca. 50-60% (European Central Bank 2024 data; FSB: ca. 30%). - United Kingdom: LCH Ltd. — Ca. 23% (Bank of England 2025 data; FSB: ca.15%). - Japan: JSCC — Ca. 80% (ICMA 2020 data and WFE 2025 data; FSB :<60%; CCIL publications and FSB indicate a 100% clearing rate for India). - India: CCIL — 100% (RBI SGL). ### Policy developments and motivations for central clearing - Considerable work has been directed to strengthen the stability and robustness of repo markets, partly in reaction to market volatility episodes that affected repo market functioning. - Central clearing of repo transactions has emerged as a potential tool to increase robustness of repo markets. - Renewed discussions are driven by: - Planned upcoming introduction of the clearing mandate in the US. - Active discussions on repo clearing mandates in other jurisdictions (e.g., Australia, the EU, the UK). - “Clearing mandate” is defined here as a legal requirement established under statute and/or delegated regulation requiring certain financial instruments or market participants to centrally clear specified transactions through a CCP; exchange or CCP rulebooks may create quasi-mandatory effects. ### Scope, aim, and preconditions of the paper - Aim: provide policy makers and FMI oversight authorities with a structured view and understanding on government-backed repo clearing services from a CCP’s perspective. - The paper: - Does not assess whether any specific jurisdiction should introduce a repo clearing mandate. - Does not take a normative position on whether repo clearing should be advanced through mandatory or market-driven approaches. - Assumed preconditions for considering repo clearing: - Sound financial supervision and oversight regimes. - Tested and credible legal, accounting and regulatory frameworks that appropriately recognize the risk-mitigating role of central clearing in capital, leverage, and liquidity requirements. - Efficient settlement landscape and prudent market practices within sufficiently developed financial markets with broad and diverse participation in the repo market. - Where these preconditions are not present, they need to be addressed before deliberations on introducing or expanding central clearing for repos. ### Structure of the paper - Section 2: brief overview of repo clearing services. - Section 3: benefits of repo clearing. - Section 4: risks from increased reliance on repo clearing. - Section 5: key considerations for CCPs and authorities with respect to repo clearing services. - Section 6: conclusions. *Source: IMF Working Papers — Central Clearing for Government Securities Repos: A CCP-Centric Perspective (1. Introduction).* ### 2. Understanding the central clearing of repos ### 2. Understanding the central clearing of repos ### Role and mechanics of CCPs in repo markets - CCPs (Central Counterparties) intermediate between counterparties of a financial contract, becoming the buyer to every seller and the seller to every buyer (thereby “clearing” the respective contract). - CCPs increase market efficiency and decrease counterparty risks by protecting other counterparties via the CCP’s risk and default management procedures if a member fails. - CCPs allow for multilateral netting, reducing the liquidity needs of market participants and allowing for a more efficient liquidity allocation. - Typical clearing processes (rules, procedures, timelines) vary by asset class, market structure and CCP, but generally include: - calculation of net positions and collateral requirements per counterparty; - coordination of settlement instructions; - multiple concurrent operational and risk management processes once a trade is submitted and accepted for central clearing. ### Policy context and post-GFC developments - CCPs have been central to post-Global Financial Crisis (GFC) reforms to increase resilience and transparency of financial markets, with emphasis on OTC derivatives (e.g., CDS and IRD). - Many G-20 jurisdictions introduced clearing mandates for select standardized derivatives categories with inherently higher risks. - Other financial contracts/instruments that are often bespoke or deemed less risky, such as FX derivatives or securities (a category which includes repos), often remain uncleared, cleared on a voluntary basis, or cleared based on market convention. ### Recent episodes highlighting systemic relevance of repo markets - Examples demonstrating stress in government securities repo markets: - repo rate spike of September 2019 in the US caused by a convergence of corporate tax payment dates, withdrawal of cash providers and strained broker-dealer balance sheets, impairing dealers’ ability to intermediate on bilateral, uncleared markets; - the Covid-19-associated Cash for Dash episode in March 2020, which led to considerable market stress, increased cash demand and required direct intervention by the Federal Reserve; - UK Gilt market volatility following the announcement of the September 2022 UK "mini-budget", which caused LDI funds to post additional collateral, increased reliance on bilateral repo markets, significant market and funding pressures and required a central bank intervention. ### Prevalence and geography of repo clearing services - Globally, relatively few CCPs offer dedicated repo clearing services; a significant portion of the repo market is settled bilaterally. - Repo clearing services are generally found in the most developed financial hubs (US, UK, Germany, Japan) or in jurisdictions with a quasi-mandate for repo clearing (e.g., India). - Repo clearing services typically take a secondary role compared to IRD or equity clearing services. - The table of CCPs offering repo clearing services (focus on government securities repo clearing; status quo as per YE 2025; note that in 2026 other CCPs plan to expand repo clearing offers and go online with repo clearing services) lists the following CCPs and home jurisdictions: 1. LCH Ltd. / (RepoClear) — UK — Europe 2. Eurex Clearing (Eurex Repo Markets) — Germany — Europe 3. LCH SA / (RepoClear) — France — Europe 4. Euronext Clearing / (Fixed Income/Repo Clearing) — Italy — Europe 5. BME Clearing / (Fixed Income) — Spain — Europe 6. Nasdaq Clearing / (Nasdaq Repo Clearing) — Sweden — Europe 7. National Clearing Centre (NCC) / (REPO Market section) — Russia — Europe 8. KDPW_CCP/ (Organized Market) — Poland — Europe 9. FICC / (Government Securities Division) — United States — Americas 10. Chicago Mercantile Exchange (CME) / (Securities Clearing) — United States — Americas 11. Canadian Derivatives Clearing Corporation (CDCC) / (Fixed Income Clearing & Repo) — Canada — Americas 12. B3 Clearinghouse — Brazil — Americas 13. Japan Securities Clearing Corporation (JSCC) / (OTC Japanese Government Bonds) — Japan — Asia 14. Shanghai Clearing House (SHCH) / (GC Repo Clearing Business) — China — Asia 15. The Clearing Corporation of India Ltd / (Securities and Money Market Segment) — India — Asia 16. Istanbul Settlement & Custody Bank (Takasbank) / (Debt Securities Market) — Turkey — Middle East 17. Muqassa / (Repo Clearing Service) — Saudi Arabia — Middle East 18. FMDQ Clear (CCP) / (Repo Segment) — Nigeria — Africa ### Structural impediments to wider repo clearing adoption - Reasons for relative scarcity of government securities repo clearing services include: - many market participants (especially on the buy-side) are reluctant to abandon efficient and economically attractive bilateral repo markets that allow contract customization; - fragmented infrastructure for repo transactions in some jurisdictions (e.g., the EU hosting multiple, competing, non-integrated platforms) prevents CCPs from achieving sufficient depth and profitability for repo clearing services; - NBFIs (non-bank financial institutions), critical players in repo markets, have been reluctant to move to central clearing due to adverse cost-benefit considerations; - bilateral, uncleared repos are often significantly cheaper with low or no haircuts requested by counterparties; - NBFIs often lack operational capabilities and risk management abilities to become clearing members; CCPs have traditionally been bank-centric infrastructures. ### Drivers of recent efforts to expand repo clearing - Three broad reasons for renewed industry and regulatory focus on expanding repo clearing services: 1. regulatory emphasis on increasing transparency and resilience of repo markets, where central clearing provides improved risk management and data collection compared with opaque bilateral markets; 2. erosion of the economic attractiveness of bilateral, uncleared OTC transactions and increased margining in bilateral transactions, combined with regulatory incentives for dealer-brokers to push clients toward centrally cleared spaces; largest global CCPs (e.g., DTCC, LCH, Eurex) have witnessed steady and continuous growth in cleared repo volumes; 3. CCPs’ efforts to improve offerings, deepen liquidity through attractive margining (i.e., cross-margining) and new membership models that cater to NBFIs, facilitating increased clearing activity in other asset classes. *Source: IMF Working Paper — Central Clearing for Government Securities Repos: A CCP-Centric Perspective, Section 2.* ### 3. Understanding the benefits of repo clearing ### 3. Understanding the benefits of repo clearing ### Improved oversight and transparency - Repo clearing via CCPs provides transparent information flows and standardized risk management across cleared market segments (footnote 37). - CCPs centralize collateral management and enforce prudent margining (footnote 38), constraining leveraged positions and enabling increased centralized market oversight. - Decentralized, bilateral repo markets often have minimal or nonexistent reporting obligations for certain counterparties (footnote 39); central clearing contrasts by increasing transparency and regulator visibility. ### Systemic risk reduction - Clearing repos through CCPs can improve liquidity of repo/treasury markets, especially in crisis situations (footnote 40). - A clearing mandate would bring repo transactions onto a common platform (a CCP) where prices and collateral circulation are standardized and harmonized via margin models and eligibility criteria for collateral. - Expected effects of central clearing on systemic risk and market functioning: - Reduction of information asymmetries. - Deeper pool of counterparties if additional participants are allowed to clear via a CCP, strengthening markets in times of stress. - Potential for more competitive margins as participation broadens (footnote 41). - Operational and margin netting features of CCPs can trigger a virtuous cycle of improved liquidity conditions and reduced clearing costs. - Central clearing would reduce bilateral credit risks by interposing the CCP between counterparties and introducing standardized margining, variation margin, and default fund contributions. - Multilateral netting through CCPs reduces gross exposures and facilitates clean-up in case of defaults (footnote 42). ### Increased efficiencies for market participants - For banks and broker-dealers: - Clearing obligation with a CCP as unique counterparty allows optimization of balance sheet utilization via netting efficiencies and cross-margining, lowering capital and liquidity costs (footnote 43). - For asset managers and buy-side firms (pension funds, hedge funds): - Reliable access to better execution, greater transparency, and increased confidence in counterparty performance during turmoil. - For CCP participants generally: - Repo clearing may provide portfolio offsetting possibilities that reduce required pre-funded resources (margins and default fund contributions) through cross-product offsets and intra-service offsets (footnote 44). - Examples: - Eurex and FICC (in cooperation with CME) allow margin offsets for repos and fixed income derivatives (footnotes 45–46). - LCH (both LTD and SA) did not allow cross-product offsets for repos in 2025, though within-service offsetting was permitted (footnotes 47–48). - Interdependencies with other cleared markets: - Repos are often used to implement hedging strategies (footnote 49); well-functioning repo clearing supports development of fixed income and interest rate derivative clearing segments. - Cross-margining between repos and derivatives with similar underlying can reduce margin requirements and harmonize risk management models, improving collateral efficiency and reinforcing broader market resilience. ### Innovation regarding increased access to central clearing — sponsored clearing - Increased repo clearing and potential clearing mandates drive CCP innovation in membership models to provide access to new non-bank participants (footnote 50). - Sponsored access models target NBFIs (e.g., pension funds in the EU) that historically relied on bilateral markets due to reluctance or inability to post margins or contribute to default funds (footnote 51). - Common features of sponsored access models: - Re-definition of the sponsoring clearing member’s role: the clearing member establishes the legal relationship with the CCP and sponsors a client’s access, providing default fund contributions and varying operational support (collateral management, settlement). - Sponsoring clearing members are required to support the CCP in the event the sponsored entity defaults; CCPs may have a direct relationship with sponsored participants and might manage their defaults directly (footnote 52). - Some arrangements require sponsoring members to assume effectively guarantee-like responsibility for obligations arising from sponsored clients (footnote 53). - Other special membership/access models target large corporates, central banks, supranationals, and DMOs that are unwilling to be exposed to margin calls or mutualized default fund contributions; models can reflect quasi-absence of credit risk or minimize CCP exposure via automatic pledging of received securities (footnote 54). - Outcomes and potential benefits: - New access models can enable more counterparties to benefit from CCP risk-management frameworks, strengthening crisis resilience and inclusiveness of cleared repo markets. - Participation may incentivize sponsored participants to improve operational capabilities and risk management as their readiness to post margins increases. - Inclusion of DMOs and central banks expands market intervention channels and reduces credit risks they face when transacting bilaterally via banks. - Observed adoption and limitations: - As of YE 2025, a substantial proportion of CCPs with repo clearing services do not yet offer non-traditional access; those that do are limited to the most developed financial markets. - New access models pose challenges for CCPs and clearing members in understanding tradeoffs between access for smaller participants/NBFIs and the associated risks. *Source: IMF Working Paper — Central Clearing for Government Securities Repos: A CCP-Centric Perspective (section 3).* ### 5. Key considerations for CCPs and authorities ### 5. Key considerations for CCPs and authorities ### Access-related considerations - Core objective: expand access to key repo-market participants while avoiding new, undue risks and complying with the Principles for Financial Market Infrastructures (PFMI).61,62 - Key requirements and risks: - Ensure sufficient margin, default fund contributions, and involvement from sponsoring clearing members; obtain sufficient legal certainty and assurances regarding sponsor guarantees.64 - Verify that sponsoring members are capable of honoring commitments in times of market turmoil; shared responsibility to monitor activity and solvency of sponsored clients. - Sponsored access models increase monitoring needs for sponsoring clearing members, adding process complexity and costs, which may deter some CCPs/jurisdictions from implementing novel access modalities and limit central clearing adoption (especially in less developed markets). - Potential misalignment between CCP strategy to develop repo clearing and clearing members’ incentives (clearing members may deny sponsorship to protect more profitable traditional client-clearing business). - Possible mitigants and design options: - Require clearing members to disclose pricing strategies to the CCP. - Restrict client-clearing to banks and permit sponsored clearing for other institutions to enable tiered access and pricing calibration. - Enable CCPs to sanction unwarranted member behavior (e.g., restrictions for clearing members that do not follow CCP policies). - Relevant PFMI principles explicitly noted: - Principle 1 (Legal basis) — legal certainty around sponsor obligations is critical.64 - Principles 18 (Access and participation requirements) and 19 (Tiered participation arrangements).63 ### Default-management-related considerations - Core challenge: default management in centrally cleared repo segments is critical and challenging due to scale, speed, interconnectedness, short maturities, and complex collateral flows.65 - Specific challenges: - Need to act swiftly whether the defaulted clearing member is a cash provider or borrower. - Handling large portfolios without destabilizing bond markets or realizing considerable losses is difficult when market participants have limited capacity to absorb portfolios under stress. - Default management toolset recommendations: - Avoid exclusive reliance on a single tool (e.g., pre-arranged broker sales); instead, establish multiple default management tools including auctions (and mandatory bidding), forced member auctions, and direct portfolio transfers. - Recognize trade-offs: broker liquidation can concentrate execution risk and fail under stress; auctions may be more market neutral in certain circumstances.66 - Require sponsoring clearing members to provide adequate support should a large sponsored clearing member default (e.g., support CCP actions or take over parts of the defaulter’s portfolio per pre-defined loss allocation mechanisms). - Client and sponsored clearing implications: - Ensure the default of a clearing member does not produce sudden loss of market access for its clients, especially where repo clearing is mandatory in a CCP’s jurisdiction. - Mandating other clearing members to step in is an option but may be constrained by differing risk appetites and balance-sheet capacity. - Consider requiring sponsors to have pre-arranged contingency sponsors and porting arrangements. - Testing and cooperation: - Regularly test default management arrangements, both stand-alone and in cooperation with other CCPs, via default simulations or “fire drills” to assess readiness and identify weaknesses.68 - Consider making participation in cross-border CCP and portfolio default management tests mandatory in jurisdictions with considerable repo clearing services or mandatory repo clearing, especially where common clearing members, clients and sponsored participants exist across CCPs. ### Considerations with regards to the role of public authorities and market structure - Question: whether central banks and other public/supranational entities69 should become clearing members in CCPs that clear repos (via full membership or special access arrangements).70 - Potential benefits of central bank/public entity participation: - Increased market confidence, additional activity, and market liquidity. - Diversification of CCP membership and signaling of a reliable liquidity backstop in stress, potentially incentivizing further central clearing of repos. - Smoother/swift transactions given RTGS systems for cash settlement are mostly operated or owned by central banks. - Risks, constraints, and design tensions: - Moral hazard concerns if central bank engagement is perceived as an implicit bail-out guarantee for the CCP.71 - Conflicts of interest and reputational risks for central banks involved in CCP oversight and direct participation. - Constitutional or statutory limits in some jurisdictions on central bank activities in private markets. - Central banks/public entities may be unwilling to participate in risk mutualization (default fund contributions, posting margin) because of exposure to mutualized losses and reinforcing the bank–sovereign nexus.72 - Central bank/public sector participation without margin/default fund contribution requires CCP safeguards to protect CCPs against credit risk; likely feasible only via special access models and in jurisdictions with negligible credit risk (i.e., high-income countries). - Competition, interoperability, and market fragmentation: - Public involvement should be guided by fair and transparent access decisions; selective access to only some CCPs skews competition. - Access to multiple CCPs increases operational complexity and costs; trade-offs must be weighed against maintaining equidistant relationships with clearing service providers. - Multiple competing CCPs risk creating disconnected liquidity pools that increase costs and inefficiencies. - Bridges/interoperability can reduce frictions by enabling netting, position transfers, and collateral mobilization across CCPs, but: - Operationalizing bridges is complex due to proprietary rules, risk management, and margin models across CCPs, limiting offsetting and margin optimization efficiencies.73 - Well-designed bridges require legal, operational, and risk-management frameworks to prevent contagion between CCPs, including reciprocal exposure handling and close-out procedures in CCP default scenarios. - Policymakers should consider whether—and under which conditions—interoperability across repo clearing markets should be mandated and ensure robust regulatory safeguards. - Monitor margining practices to prevent competitive "race to the bottom" among CCPs that could undermine prudent risk management in a systemically important market. *IMF Working Paper — Central Clearing for Government Securities Repos: A CCP-Centric Perspective* ### References ### References ### Central clearing, CCPs, and resolution - BCBS-CPMI-IOSCO (2025) Transparency and responsiveness of initial margin in centrally cleared markets. 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Available at: https://www.bis.org/publ/cgfs59.pdf. - Di Luigi, C., Perrella, A. and Ruggieri, A., (2024). "The fundamental role of the repo market and central clearing", Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 48, Bank of Italy, Directorate General for Markets and Payment System, July 2024. Available at: N.48-MISP.pdf. - CPMI-IOSCO (2022), Client clearing: access and portability. Available at: https://www.bis.org/cpmi/publ/d210.pdf - D’Souza,C., and Hackenberg, V (2025). “Central clearing for repo markets: Is Europe putting the cart before the horse?”, Eurex, May 2025. First published in Securities Finance Times Repo Annual 2025. Available at: https://www.eurex.com/ec-en/find/news/Central-clearing-for-repo-markets-Is-Europe-putting-the-cart-before-the-horse--4465092 - Eurex (2025). “Central clearing of repo markets in Europe – lift the barriers and watch the market evolve”, Whitepaper, March 2025. Available at: Central clearing of repo markets in Europe – lift the barriers and watch the market evolve. - Reserve Bank of Australia, (2015), “Central Clearing of Repos in Australia: A Consultation Paper”, March 2015. Available at: https://www.rba.gov.au/publications/consultations/201503-central-clearing-of-repos-in-australia/pdf/201503-central-clearing-of-repos-in-australia.pdf - Martinez-Resano, J., (2010): Repo markets: draft background note. Washington, D.C. World Bank Group. Available at : https://documents1.worldbank.org/curated/en/293941467998820350/pdf/104181-WP-PUBLIC-GIVE-BOBBIE-REPORT-NUMBER-RepoBackgroundNotefinal.pdf ### Market stress, volatility, and historical episodes - Huser,A., Lepore, C., and Veraart, L.. (2024), How does the repo market behave under stress? Evidence from the COVID-19 crisis. Journal of Financial Stability, Volume 70, February 2024, 101193 Available at: https://www.sciencedirect.com/science/article/pii/S1572308923000931 - Kahn, R. et al, (2023). "Anatomy of the Repo Rate Spikes in September 2019," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 5(4), pages 1-25, July. - Dao, M., Tan, B., Zhou, J., (2025). “Repo Market Volatility and the U.S. Debt Ceiling”, IMF Working Papers 2025/127 (Washington: International Monetary Fund). Available at: https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025127-print-pdf.pdf. - Chen, R. and Kemp, E., (2023). “Putting Out the NBFire: Lessons from the UK’s Liability-Driven Investment (LDI) Crisis,” IMF Working Papers 2023/210 (Washington: International Monetary Fund). Available at: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023210-print-pdf.pdf. - Bowman, David H. and Huh, Yesol and Infante, Sebastian, Balance-Sheet Netting in U.S. Treasury Markets and Central Clearing (July 31, 2025). Available at: https://ssrn.com/abstract=5440814. ### Non-bank financial intermediation, liquidity, and margin preparedness - FSB, (2022). “Global Monitoring Report on Non-Bank Financial Intermediation, 2022. Available at: https://www.fsb.org/uploads/P201222.pdf. - FSB, (2025). “Global Monitoring Report on Non-Bank Financial Intermediation, 2025. Available at: https://www.fsb.org/uploads/P161225.pdf. - FSB, (2024). “Liquidity Preparedness for Margin and Collateral Calls” - Final Report, December 2024. - FSB, (2026). “Vulnerabilities in Government Bond-backed Repo Markets” - February 2026. Available at: https://www.fsb.org/uploads/P040226.pdf. - Guse, M, Hoops, M. and Perozek, M., (2024). "Central Clearing Counterparties in the Financial Accounts of the United States," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, July 12, 2024, Available at https://doi.org/10.17016/2380-7172.3540 . - O’Donnell, C. and F. Tamburrini (2025) “Central clearing and the growing presence of non-bank financial intermediation in euro area government bond repo markets.” Published as part of the Macroprudential Bulletin 26, ECB, January 2025. - Klaus, B. and Mingarelli, K., (2024) “Euro area banks as intermediators of US dollar liquidity via repo and FX swap markets.” Published as part of the Financial Stability Review, ECB, November 2024. ### Market practice, inclusion, and regional guides - Das, S., (2021). “Financial inclusion – past, present and future”, Keynote address at the 21st Fixed Income Money Market and Derivatives Association of India and Primary Dealers Association of India Annual Conference, August 2021. Available at: https://www.bis.org/review/r210902c.htm. - ICMA, (2022). “ICMA Guide to Asian Repo Markets - Japan”, February 2022. Available at https://www.icmagroup.org/assets/documents/Maket-Practice/ICMA-Guide-to-Asia-Repo-Markets-Japan-February-2022.pdf?vid=2 - Di Luigi, C., Perrella, A. and Ruggieri, A., (2024). "The fundamental role of the repo market and central clearing", Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 48, Bank of Italy, Directorate General for Markets and Payment System, July 2024. Available at: N.48-MISP.pdf. ### IMF and related working papers cited - IMF, (2024). “Expanding central clearing in Treasury Markets”, IMF Global Markets Analysis, IMF, May 2024. - Dao, M., Tan, B., Zhou, J., (2025). “Repo Market Volatility and the U.S. Debt Ceiling”, IMF Working Papers 2025/127 (Washington: International Monetary Fund). Available at: https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025127-print-pdf.pdf. - Chen, R. and Kemp, E., (2023). “Putting Out the NBFire: Lessons from the UK’s Liability-Driven Investment (LDI) Crisis,” IMF Working Papers 2023/210 (Washington: International Monetary Fund). Available at: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023210-print-pdf.pdf. *Central Clearing for Government Securities Repos: A CCP-Centric Perspective — Working Paper No. WP/2026/119* --- _Source: https://www.imf.org/-/media/files/publications/wp/2026/english/wpiea2026119-source-pdf.pdf_