Unlocking liquidity and stability: The buy- side case for cleared repo

In post-financial crisis capital markets, demand for collateral and funding is higher than ever before. Since the early 2010s, several key regulatory mandates have been introduced across the global market that have significantly increased demand for reliable access to liquidity pools.

At the same time, growing competition has significantly increased the focus among buy-side firms on operational efficiencies and financing costs. All this is resulting in the growing number of buy-side firms, particularly pension funds and large asset managers, that are clearing repo trades.

The Uncleared Margin Rules (UMR) and the European Markets Infrastructure Regulation (EMIR) have resulted in a significant uptick in the volume and types of trades that are cleared at a central counterparty (CCP). This has brought significant benefits to the market with reduced counterparty risk and increased transparency.

Increasingly, the buy-side across Europe is now looking to clear repo trades at CCPs such as Eurex Clearing to reduce operational inefficiency, increase access to liquidity and decrease counterparty risk.

Historically, the buy-side has been more active in bilateral repo markets for their short-term funding and collateral requirements. However, as institutions become more reliant on repo markets to source cash to post variation margin against their derivatives books and to optimize funding and collateral requirements, there is a growing interest in central clearing of repo among the buy-side in Europe.

At the core of Eurex’s offering are the GC Pooling and special repo segments. GC Pooling provides standardized, triparty-cleared repos backed by high-quality collateral, supporting automation and netting benefits.

Eurex Repo is a market leader in cash driven, centrally cleared tri-party repo with a market share of around 90% YTD 2025. This ensures access to liquidity against a broad set of collateral, even in times of crisis. Meanwhile, the special repo market segment enables targeted collateral sourcing and mobilization on a specific ISIN level, where Eurex observed a significant diversification across European issuers.

Growing demand from the buy-side

Last October, Eurex brought together a select group of buy-side firms in New York to share their views on repo clearing. The US is at a different stage of evolution when it comes to repo clearing, particularly since the US Securities and Exchange Commission (SEC) has mandated that all US Treasury repo trades be centrally cleared by June 2027. In Europe, adoption has been more organic in the inter-dealer market, ahead of any regulatory mandate to clear.

At the Eurex roundtable, senior buy-side executives pointed to several benefits of centrally clearing their repo trades. Most notably, being able to tap into reliable and deep liquidity pools that do not freeze during times of market stress.

In Europe, large pension funds and insurances are currently leading the way in their adoption of cleared repo. These funds are required to pay variation margin against OTC derivatives trades. As a result, they face cash margin calls from their counterparties with limited time to settle. Firms who have historically been fully invested are now frequently holding large liquidity buffers which need to be managed efficiently from a cost and operational perspective.

When margin calls do not fully utilize the liquidity buffers, pension funds can invest their excess cash in GC Pooling at Eurex at competitive rates through reverse repo. Cleared repo via Eurex allows these firms access to trade with over 150 banks that are part of Eurex repo clearing, rather than the 10-15 they would typically have access to in bilateral markets.

European market structure presents unique challenges compared to the US, notably due to the number of different sovereign debt issuers and the fragmentation of custodians and settlement systems across different jurisdictions. Central clearing offers partial relief by streamlining processes and enhancing transparency, thereby, supporting the broader objective to develop operational frameworks that can attract and support a wider range of participants in CCP environments and allow for a better European capital markets integration.

Eurex offers several access models to the buy-side. The most popular model, ISA Direct, is tailored specifically for the buy-side and combines elements of direct clearing membership and the traditional service relationship in client clearing.

ISA Direct establishes a principal client relationship between buy-side clients and the CCP, with the regular clearing member acting as a clearing agent (or indemnifying clearing agent) providing a variety of mandatory and optional service functions, including the management of default fund contributions and default management bidding obligations. This significantly reduces the operational burden for the buy-side when it comes to clearing their repo trades. Thereby, Eurex cleared repo is also accessible to pension funds, insurances, investment funds, and corporates.

The right time to move

The timing of the current shift from the buy-side to cleared repo is no coincidence. The phase-out of the ECBs targeted longer-term refinancing operations (TLTROs) has driven eurozone banks to seek new, flexible and reliable liquidity sources. As a result, the repo market is back in focus and with it, cleared repo is gaining momentum.

In response to this structural change, more key sponsors have joined the cleared repo ecosystem. Until 2023, Societe Generale was the sole clearing sponsor offering buy-side access to repo clearing at Eurex. In 2024, ABN AMRO entered the market, and several other clearing agents are currently preparing to go live in the second half of 2025.

Eurex Repo is also set to welcome a large custodian as an official settlement institution over the next few weeks to further simplify the operational workflow. This is set to further expand access, as well as improving pricing for buy-side institutions. Collaboration with clearing agents, custodians, and buy-side vendors further simplifies the onboarding process, as well as ongoing operational management.

Beyond market access, cleared repo brings significant structural benefits. Counterparty risk is dramatically reduced, with Eurex Clearing acting as the central counterparty. The regulatory capital and balance sheet benefits available to banks under Basel III from centrally cleared repo, should translate into better trading terms and deeper liquidity for the buy-side. Operational efficiency is enhanced by standardized processes, automated collateral management, and near 100% settlement rates.

Eurex’s GC Pooling enables efficient collateral transformation, allowing firms to convert a broad array of assets into cash at will. This is especially useful for managing derivative margining requirements. Overnight liquidity access and reuse of collateral across trading desks for other Eurex margin obligations add further to the value of the platform.

The ecosystem is set to deepen further. One of the most anticipated developments for 2025 at Eurex is the planned move to PRISMA’s value at risk (VaR) margin methodology which should eventually introduce portfolio margining between special ISIN repo transactions and Eurex’s interest rate futures suite. This integrated margining framework will significantly improve capital efficiency and reduce the cost of central clearing of both repos and listed derivatives at Eurex.

With more than 20 vendors including SimCorp supporting Eurex Repo, regulatory compliance is another major topic. Most recently, Eurex has, for example, partnered with software and consulting firm Comyno which provides clients with advice and solutions to comply with Eurex cleared repos under the Securities Financing Transactions Regulation (SFTR).

Conclusion

While CCP clearing introduces margin requirements that may increase direct transaction costs compared to non-CCP cleared repos, these requirements serve a broader purpose helping to enhance overall market resilience.

The market has spoken by already adopting repo clearing in Europe far ahead of any regulatory mandate. Buy-side participants now include large pension funds, insurers, and asset managers using repos both to raise and deploy cash. Eurex currently has around a dozen clients onboarding to clear repo – a sign of the growing momentum among the buy-side.

Eurex’s cleared repo service represents a major evolution in European market structure that meets the increasing demands of the buy-side for fast and reliable access to cash and collateral to meet regulatory and risk management requirements. As market structure continues to modernize and regulations evolve, cleared repo will play a pivotal role in supporting secure, scalable, and cost-effective funding for the buy side.