The Office of Financial Research (OFR) posted a blog that asks, "How Will Central Clearing Impact the Repo Market?" It states, "The U.S. repurchase agreement (repo) market serves as a core channel for liquidity in the U.S. Treasury market. As of August 2025, over $8 trillion in U.S. Treasury-collateralized repo was outstanding, much of which is renegotiated daily. Short-term repos provide market participants with low-cost funding sources that support the smooth functioning of broader financial markets. However, these sources expose financial markets to stability risks since funding can dry up quickly."
The piece tells us, "One means of addressing this vulnerability is central clearing, a process by which a central counterparty (CCP) becomes the counterparty to the transaction for both the lender and the borrower, guaranteeing the trade. Central clearing can reduce counterparty risk and provide netting efficiencies but may reduce contracting flexibility and impose costs. Due to the inflexibility and expenses, central clearing has had historically limited participation."
A section titled, "Estimating the Central Clearing Rule's Impact on Repo Outstanding," says, "The potential role of central clearing in enhancing Treasury market resilience has gained greater attention in recent years. The SEC adopted a rule change in 2023 requiring certain U.S. Treasury-collateralized repo to be centrally cleared by 2027. While this will result in more central clearing, the scale of this increase has remained uncertain. With the OFR's new collection of repo data in 2024, a comprehensive and detailed assessment of which repos are mandated to be centrally cleared is now possible."
It continues, "Had the central clearing rule been in place during 2025, assuming no change in the underlying repos, the bulk of Treasury repo would have been centrally cleared as the rule intends. During the first eight months of 2025, 45% of average daily repo outstanding was already cleared. If the central clearing rule had been implemented, we estimate that 77% would have been cleared."
The OFR writes, "The two main types of repo that are exempt from the central clearing rule are those between affiliated entities that are legally distinct but associated with the same parent financial institution and those with embedded optionality (e.g., open and evergreen). Of the 23% of repo remaining non-centrally cleared, 79% would fall under the affiliated entities exemption. The remaining repos with embedded optionality may become eligible to clear as clearing services expand."
They state, "The Supplementary Leverage Ratio (SLR) can be a constraining regulatory metric for repo dealers because repo activity generally puts downward pressure on the SLR. However, regulatory accounting rules allow dealers to net certain repo positions against offsetting reverse repo positions provided they are with the same counterparty and end on the same date. Since the CCP becomes the counterparty in all centrally cleared repo transactions, dealers have the ability to net more of their positions. These netting efficiencies should improve the SLRs for the bank holding companies of dealers."
The blog explains, "Daily repo data show how dealers manage their balance sheet on days surrounding regulatory reporting days like quarter-ends. Figure 3 shows no pattern in non-netted positions over the quarterly cycle. This suggests that dealers manage their balance sheet uniformly rather than altering balance sheet composition near regulatory reporting dates to manage regulatory constraints, which is consistent with previous OFR research."
It concludes, "This analysis does not account for how market participants may adjust to the central clearing rule. For example, dealers might adjust contract terms to optimize netting efficiencies under central clearing. As the compliance date for the central clearing rule approaches, the OFR will continue monitoring how market participants are adjusting."
In other news, Calastone recently published, "2026 Outlook: Money Markets at an Inflection Point." They comment, "As we head into 2026, money market funds (MMFs) find themselves in a position few would have predicted just a few years ago. After more than a decade defined by near-zero or negative interest rates, MMFs have returned to the centre of institutional cash management -- and they have done so with remarkable resilience. Against a backdrop of easing interest rates, assets have continued to grow, innovation has accelerated, and the strategic importance of MMFs has arguably never been greater."
The article tells us, "This outlook explores the forces shaping money markets in 2026: the evolving rate environment, record asset levels, the rise of tokenised distribution, intensifying competition through portals, growing demands for real-time connectivity, structural challenges around transfer agency, and the emerging role of artificial intelligence. Taken together, these trends point to a market at an inflection point, moving from recovery to reinvention."
It says, "Historically, rate cuts would have been expected to trigger an exodus from money market funds. That simply has not happened this time. Instead, MMFs have defied precedent. Despite declining yields, institutional money market assets are sitting at or near all-time highs -- roughly $8 trillion globally -- making this the largest pool of institutional MMF assets ever recorded."
Calastone states, "If rates explain why money has stayed in MMFs, tokenisation helps explain why the market is still expanding. Over the past two years, tokenisation has moved rapidly from proof-of-concept to live commercial deployment, with money market funds emerging as one of the most natural and compelling use cases. Tokenised distribution -- where traditional MMFs are made available on blockchain rails -- is now reshaping how investors access, use and think about liquidity products."
Finally, they write, "As MMFs grow in importance, competition is intensifying and nowhere is this more evident than in distribution. The money market portal has become a critical control point in the value chain. In 2025 alone, the market saw a wave of new portal launches and upgrades, alongside renewed investment from both established players and new entrants. Banks, asset managers, fintechs and independent platforms are all vying to own the client interface."
