With the clearing mandate for repos versus U.S. Treasuries approaching next year (30th June 2027), more and more people will be looking at repo clearing.

So in this blog I will explain the different sectors of the U.S. Treasury repo market before next week digging into the public data that helps shed some light on each corner of the market.

It gets “inside baseball” quickly – so there is some assumed knowledge of repos and what a repo is in this article. You’ve been warned!

The dual axes of repo

You will find a lot written about repo by the US Office of Financial Research (OFR). Their literature introduced me to thinking about the repo market along two axes, as shown in this diagram:

We have:

• The type of repo – bilateral (i.e. between two counterparties) or tri-party – with a custodian/tri-party agent involved.
• Cleared status – yay or nay?
• I would also add membership type to the above. Are the counterparties direct members of the clearing house or will it be a sponsored repo, whereby a clearing member facilitates clearing access for an end-user (such as a money market fund or hedge fund).

Bilateral Repos

Definition

A repo between two counterparties, typically with the underlying U.S. Treasury specified at the time of trading. The UST is settled via Fedwire Securities and the cash via Fedwire Funds. These two settlements are typically linked via Delivery-versus-Payment (DVP) to mitigate settlement risk.

Why do you use a bilateral repo? Because you know what bond you want to lend/borrow and you’ve found a counterparty willing to do so at a reasonable price.

There are two types of bilateral repo, depending on their cleared status:

Non-centrally cleared bilateral repo (NCCBR)

These repos involve only the two counterparties. You can think of this as the “simplest” form of repo. Exchange of collateral for cash between two counterparties.

Centrally Cleared Bilateral (DVP) Repo

A repo can be novated to a CCP, meaning that counterparties benefit from multilateral netting. This allows a counterparty to net all of their bilateral repos at the CCP versus the same underlying security, and to significantly reduce the number of cash settlement obligations each day through multilateral netting.

The credit risk of the repo is then also facing the CCP, not your bilateral counterparty – meaning that the CCP will step into the trade in the event of default. Clearing has further benefits in terms of standardised margin and predictable settlement times.

For USTs, these cleared trades all happen at DTCC’s Fixed Income Clearing Corporation (FICC), specifically as part of their Government Securities Division (GSD).

CME (CME Securities) and ICE (ICE Clear Credit) have announced plans to offer clearing of UST repos sometime soon.

A DVP repo at DTCC can either be between two direct clearing members, or either leg may be a sponsored leg. This means that a direct clearing member (a dealer) agrees to sponsor access to clearing on behalf of a end-user (typically a hedge fund or a money market fund).

Tri-party Repos

Definition

A repo between two counterparties and a third-party agent (Bank of New York), typically against a list of acceptable U.S. Treasuries (the “collateral eligibility schedule“). With both counterparties using the BNY tri-party platform, securities can be transferred via book-entry allocation – removing frictions.

Why use tri-party? Imagine you are a money market fund lending cash to dealers. You care which collateral is eligible and that it is appropriately margined, but probably not whether you receive Bond A or Bond B. The dealer cares a lot. Tri-party gives the dealer flexibility to optimise collateral whilst the lender benefits from outsourced collateral management and operational simplicity in return.

This value compounds over time, simplifying “open” repo operations in particular. Tri-party really helps to facilitate rolling of secured funding (against an inventory).

Uncleared Tri-party repo

These repos involve the two counterparties and BNY as the third-party agent. Exchange of collateral will happen via internal accounts at BNY, and associated cash settlement can also occur through accounts at BNY.

Cleared Tri-party repo

There are two types of cleared tri-party repo and both are versus General Collateral. This means that a pre-defined list of U.S. Treasuries are eligible for delivery in these repos. The two products are delineated via dealer-to-dealer and dealer-to-customer markets.

GCF Repo Service

This is an anonymous, dealer-to-dealer market, providing a central pool of standardised liquidity in GC repo. They are still settled on a tri-party basis, meaning that the dealer must have access to the BNY tri-party platform. However, they are cleared, meaning novation to the CCP, multilateral netting and standardised operational protocols.

Sponsored GC

End-users can also trade GC repo at a clearing house! Sponsored GC offers end-users access to cleared GC repo against defined collateral baskets – defined by the CUSIPs listed below:

Again, this offers the benefits of clearing whilst retaining the flexibility of tri-party settlement.

Repo Pricing

As with all funding products, the supply/demand balance will dictate pricing. Repo is a predominantly flow-driven market, so there is no reason to think that bilateral or tri-party repo rates will be higher/lower than each other.

In Summary

Your cut-out and keep guide to repo can be summarised in a nice graphic:

• NCCBR – The “simplest” form of repo. Two counterparties, no CCP. Specific collateral, bilateral risk and little standardisation.
• Cleared Bilateral via FICC DVP – Bilateral repo with a CCP in the middle. Multilateral netting, standardised margining and predictable operational protocols.
• Tri-party – Two counterparties plus a tri-party agent (BNY). Flexible collateral management.
• GCF + Sponsored GC Cleared Repo – Standardised baskets of USTs with distinct pools of liquidity for dealer markets (GCF) and end-users (Sponsored GC). BNY still acts as an administrator, bringing tri-party benefits to the cleared world.