Central Clearing for Government Securities Repos: A CCP-Centric Perspective

Government securities-backed repo markets constitute a key funding source for market participants in many jurisdictions. A number of recent stress episodes, e.g., in US and UK repo markets, has led to renewed efforts to strengthen the resilience of repo markets. This notably includes a push to increased central clearing via central counterparties (CCPs) which may come via market incentives or in the form of mandatory clearing. Central clearing is commonly considered as a key tool to increase transparency and understanding of markets and improve the risk management practices of market participants. This paper provides a brief overview of post trade-arrangements in select government securities repo markets and offers a structured analysis of potential benefits and risks of bringing repo markets onto centrally cleared platforms from a CCP perspective. The paper lists a set of key considerations that CCPs—and indirectly—policy makers could take into account when exploring the expansion of repo clearing services or opting for a repo clearing mandate. Aside from considerations pertaining to access modalities to repo clearing services, default management and market structure-related aspects are of key importance. Together, these factors ensure that the transition of repo transactions from a decentralized, uncleared set-up to central clearing is conducive to more resilient repo and ultimately government bond markets.