Infrastructure · Clearing
Central Counterparty Clearing in Global Repo Markets
A CCP becomes buyer to every seller and seller to every buyer, replacing many bilateral exposures with one exposure to the clearing house. In repo, the biggest benefit is netting, which can reduce balance sheet usage for dealers.
Last reviewed 27 October 2026
How multilateral netting helps
If a dealer has a repo with one bank and a reverse repo with another in the same security and term, bilateral trades stay on its balance sheet in full. Once both are novated to a CCP, accounting netting rules may allow them to be offset, reducing leverage exposure. Whether netting is achieved depends on matching terms and local accounting and capital rules.
| Position | Bilateral | CCP-cleared |
|---|---|---|
| Repo with Bank A | Gross exposure to Bank A | Novated to CCP |
| Reverse repo with Bank B | Gross exposure to Bank B | Novated to CCP |
| Result | Two gross positions | One net position with CCP, if netting criteria are met |
Margin and default management
- Initial margin covers potential losses if a member defaults.
- Variation margin settles daily price moves.
- A default fund, funded by members, absorbs losses beyond margin.
- Default procedures include auctions of the defaulting member's portfolio.
Clearing across international markets
US Treasury market clearing, European sovereign repo clearing and Japanese JGB clearing illustrate different approaches to central counterparty infrastructure. Product eligibility, membership, client access and implementation schedules differ. Desks should assess the actual rules of each clearing service rather than assume one jurisdiction’s model applies globally.
When bilateral still makes sense
Clearing does not cover every collateral type or term, and membership has costs. Many global desks run a mix: cleared for standard government bond repo, triparty for general collateral financing and bilateral for specials and bespoke trades.