The case for central repo clearing
May 2026
Commonwealth Bank’s Russell Simpson, Michael Tang, Dr Hamid Yahyaei, and Shelby Kaye, discuss Australia’s evolving repo market and the push for central clearing
Image: Michael Evans
A maturing Australian repo market and global regulatory shifts are strengthening the case for central clearing.
Australia is at a pivotal juncture in its repo market development, as renewed industry engagement and global mandates catalyse the transition toward central clearing. Repurchase agreements, or repos, allow investors to swap securities for short-term cash and are a vital source of liquidity in global financial markets, particularly during periods of heavy trading or stress.
In Australia, repos are still conducted through bilateral deals between banks and securities holders. But as the market has grown and evolved, attention is turning to central clearing where a central counterparty guarantees trades, reduces counterparty risk, and limits the spread of defaults.
The case for central repo clearing in Australia is strengthening, as the market matures and global regulators, particularly in the US, mandate clearing for government securities. Implementing a central counterparty (CCP) has the potential to improve price discovery, increase market liquidity by freeing up balance sheet capacity, and broaden participation from offshore and domestic investors.
Achieving a successful transition will require overcoming structural constraints, such as settlement inefficiencies and the need for a centralised infrastructure that can operate efficiently across time zones.
Several forces are currently heightening market participants’ focus on central clearing of Australia’s repo market. One is that the market’s size, structure, and usage have evolved, making the widely accepted benefits of improved liquidity and price discovery, and minimisation of systemic risk, increasingly difficult to ignore.
Another is a global shift in market settings. In the US, regulators are mandating central clearing of Treasury repo transactions from next year, prompting markets with voluntary clearing frameworks, such as the UK, to reassess their own approaches. This has also catalysed local conversations about the future trajectory of Australia’s repo market and optimal market design.
As the Australian market matured, and amid renewed industry engagement, the Council of Financial Regulators (CFR) launched a public consultation last year to reassess the case for central repo clearing. This arrived more than a decade after the Reserve Bank of Australia’s (RBA’s) initial assessment, which set out the benefits of CCPs but fell short of recommending it
be re-introduced.
Submissions made during the consultation suggest that developments in the intervening period have strengthened the case for change. In particular, participants, including Commonwealth Bank, highlighted the potential for a CCP to improve price discovery, transparency, and risk mitigation, as well as supporting a deeper and more diverse repo market.
Russell Simpson, Commonwealth Bank’s global head of securities financing, says: “We believe central clearing is a very important step in having an efficiently functioning repo market. It has the potential to broaden participation among offshore investors and domestic participants, such as regional banks and super funds and helps position Australia’s government bond market among the most sophisticated globally over time.”
However, the path to implementation is not straightforward. As reflected in consultation submissions, the transition raises questions about market structure, costs, and coordination. The RBA has indicated that it has no plans to join a bond or repo CCP and the choice of model, whether sponsored, guaranteed, or both, and service providers are yet to be determined.
Key considerations include whether the roll-out should be phased, how compliance is managed, the inclusion of sovereign institutions, and the current lack of prime banking services. There is also the question of how new infrastructure can be introduced without disrupting the existing bilateral framework. Together, these issues will shape a smooth transition to a scalable, widely adopted central clearing function.
Market evolution and maturity
One historical barrier to central repo clearing in Australia continues to gradually diminish. That is, ensuring that the size of the repo market sufficiently supports the economics of a CCP.
According to the aggregated public data analysed by Commonwealth Bank, domestic volumes across debt and equity securities, lending, and repo are moving higher, providing insight into the drivers of market activity and momentum. Commonwealth Bank’s Dr Hamid Yahyaei, director, fixed income and interest rate strategy, points to the rebound in repo market volume since the pandemic, as seen in Figure 1, led by increasing activity in semi-government bonds and their use in repo transactions, relative to the Australian Government Securities (AGS) market.
“We’re seeing the repo volumes and overall market size growing domestically. This is currently concentrated in the semi space, and what’s promising is it means there is appetite,” says Yahyaei. “What needs to follow is scale, and with a larger proportion of these securities being bought and held, improved price discovery and participation in securities lending can open up the market.”
For now, market activity remains largely domestic, with non-resident participation comparatively limited, as reflected in the breakdown in banks and Registered Financial Corporations (RFCs) selling securities (Figure 2). Yahyaei says part of this is “the attraction of deeper, more liquid global markets and a domestic market infrastructure largely built on bilateral relationships”.
However, looking more closely at these flows, including non-residents selling securities to banks and RFCs, Commonwealth Bank’s macro and rates strategist, Michael Tang, indicates a “fairly sizeable offshore component”. “Anecdotally, we’re also hearing that there is a lot more offshore participation in semis issuance, reinforcing the offshore connection,” Tang says.
Overcoming structural constraints
As Simpson explains, the amount of issuance also plays a role. “While issuance from AGCBs in isolation may not be large, if we start looking at semi-issuance and what that profile could be in coming years, further growth in the market appears likely.”
“That may put pressure on repo market participants and their balance sheets to provide the financing, which may be less in an uncleared market,” Simpson adds. “If balance sheet caps are hit, it can test market resilience and mean central banks have to step in as the conduit between the marketplace and liquidity.”
Central clearing can help alleviate some of these challenges. In its summary of submissions, the CFR noted that “the majority of respondents said that the netting of exposures against a single counterparty could increase market liquidity by freeing up capacity on participants’ balance sheets”.
This also has the potential to support broader market participation, should the right clearing model be adopted and prime banking services introduced. The Commonwealth Bank’s submission outlined that under a sponsorship model for clearing bonds and repos, smaller market participants can avoid direct costs and capital requirements associated with clearing membership.
According to Simpson, growing offshore interest, particularly from major northern hemisphere markets, is also creating settlement inefficiencies given Australia’s time zone and fragmented settlement infrastructure. He continues: “It’s another reason why central clearing is becoming more compelling.
“Currently, participants navigate multiple options, settling trades either through Europe-based Euroclear Bank or ClearStream Bank, or cross-border, back through Austraclear while still adhering to the same timings. Given you can’t settle after the cash payment system closes, this results in blockages towards the end of the day.”
To overcome this, it will be crucial to integrate these systems into a cohesive framework that can operate efficiently across time zones. A significant uplift and centralisation of cash and settlement systems will therefore be needed for efficient clearing of repos and bonds in Australia.
Steps towards central clearing
A signal of the case for a centrally-cleared market in Australia is the movements among potential clearing houses. The consultation process also considered the location of the prospective CCP operator.
LCH is among the entities considering an Australian launch. The LCH Group already operates across UK and European markets, with Commonwealth Bank recently joining RepoClear at LCH, the central counterparty for UK gilt repo transactions. The Australian Securities Exchange (ASX) is also reported to be assessing participation.
While the interest from potential CCP operators, alongside elevated focus among market participants, industry, and regulators, is a positive sign, many important decisions remain ahead. The benefits, including improved market efficiency, price transparency, and access have been broadly discussed. From here, selecting the right infrastructure and model requires careful consideration to bolster this important part of Australia’s financial system.
Australia is at a pivotal juncture in its repo market development, as renewed industry engagement and global mandates catalyse the transition toward central clearing. Repurchase agreements, or repos, allow investors to swap securities for short-term cash and are a vital source of liquidity in global financial markets, particularly during periods of heavy trading or stress.
In Australia, repos are still conducted through bilateral deals between banks and securities holders. But as the market has grown and evolved, attention is turning to central clearing where a central counterparty guarantees trades, reduces counterparty risk, and limits the spread of defaults.
The case for central repo clearing in Australia is strengthening, as the market matures and global regulators, particularly in the US, mandate clearing for government securities. Implementing a central counterparty (CCP) has the potential to improve price discovery, increase market liquidity by freeing up balance sheet capacity, and broaden participation from offshore and domestic investors.
Achieving a successful transition will require overcoming structural constraints, such as settlement inefficiencies and the need for a centralised infrastructure that can operate efficiently across time zones.
Several forces are currently heightening market participants’ focus on central clearing of Australia’s repo market. One is that the market’s size, structure, and usage have evolved, making the widely accepted benefits of improved liquidity and price discovery, and minimisation of systemic risk, increasingly difficult to ignore.
Another is a global shift in market settings. In the US, regulators are mandating central clearing of Treasury repo transactions from next year, prompting markets with voluntary clearing frameworks, such as the UK, to reassess their own approaches. This has also catalysed local conversations about the future trajectory of Australia’s repo market and optimal market design.
As the Australian market matured, and amid renewed industry engagement, the Council of Financial Regulators (CFR) launched a public consultation last year to reassess the case for central repo clearing. This arrived more than a decade after the Reserve Bank of Australia’s (RBA’s) initial assessment, which set out the benefits of CCPs but fell short of recommending it
be re-introduced.
Submissions made during the consultation suggest that developments in the intervening period have strengthened the case for change. In particular, participants, including Commonwealth Bank, highlighted the potential for a CCP to improve price discovery, transparency, and risk mitigation, as well as supporting a deeper and more diverse repo market.
Russell Simpson, Commonwealth Bank’s global head of securities financing, says: “We believe central clearing is a very important step in having an efficiently functioning repo market. It has the potential to broaden participation among offshore investors and domestic participants, such as regional banks and super funds and helps position Australia’s government bond market among the most sophisticated globally over time.”
However, the path to implementation is not straightforward. As reflected in consultation submissions, the transition raises questions about market structure, costs, and coordination. The RBA has indicated that it has no plans to join a bond or repo CCP and the choice of model, whether sponsored, guaranteed, or both, and service providers are yet to be determined.
Key considerations include whether the roll-out should be phased, how compliance is managed, the inclusion of sovereign institutions, and the current lack of prime banking services. There is also the question of how new infrastructure can be introduced without disrupting the existing bilateral framework. Together, these issues will shape a smooth transition to a scalable, widely adopted central clearing function.
Market evolution and maturity
One historical barrier to central repo clearing in Australia continues to gradually diminish. That is, ensuring that the size of the repo market sufficiently supports the economics of a CCP.
According to the aggregated public data analysed by Commonwealth Bank, domestic volumes across debt and equity securities, lending, and repo are moving higher, providing insight into the drivers of market activity and momentum. Commonwealth Bank’s Dr Hamid Yahyaei, director, fixed income and interest rate strategy, points to the rebound in repo market volume since the pandemic, as seen in Figure 1, led by increasing activity in semi-government bonds and their use in repo transactions, relative to the Australian Government Securities (AGS) market.
“We’re seeing the repo volumes and overall market size growing domestically. This is currently concentrated in the semi space, and what’s promising is it means there is appetite,” says Yahyaei. “What needs to follow is scale, and with a larger proportion of these securities being bought and held, improved price discovery and participation in securities lending can open up the market.”
For now, market activity remains largely domestic, with non-resident participation comparatively limited, as reflected in the breakdown in banks and Registered Financial Corporations (RFCs) selling securities (Figure 2). Yahyaei says part of this is “the attraction of deeper, more liquid global markets and a domestic market infrastructure largely built on bilateral relationships”.
However, looking more closely at these flows, including non-residents selling securities to banks and RFCs, Commonwealth Bank’s macro and rates strategist, Michael Tang, indicates a “fairly sizeable offshore component”. “Anecdotally, we’re also hearing that there is a lot more offshore participation in semis issuance, reinforcing the offshore connection,” Tang says.
Overcoming structural constraints
As Simpson explains, the amount of issuance also plays a role. “While issuance from AGCBs in isolation may not be large, if we start looking at semi-issuance and what that profile could be in coming years, further growth in the market appears likely.”
“That may put pressure on repo market participants and their balance sheets to provide the financing, which may be less in an uncleared market,” Simpson adds. “If balance sheet caps are hit, it can test market resilience and mean central banks have to step in as the conduit between the marketplace and liquidity.”
Central clearing can help alleviate some of these challenges. In its summary of submissions, the CFR noted that “the majority of respondents said that the netting of exposures against a single counterparty could increase market liquidity by freeing up capacity on participants’ balance sheets”.
This also has the potential to support broader market participation, should the right clearing model be adopted and prime banking services introduced. The Commonwealth Bank’s submission outlined that under a sponsorship model for clearing bonds and repos, smaller market participants can avoid direct costs and capital requirements associated with clearing membership.
According to Simpson, growing offshore interest, particularly from major northern hemisphere markets, is also creating settlement inefficiencies given Australia’s time zone and fragmented settlement infrastructure. He continues: “It’s another reason why central clearing is becoming more compelling.
“Currently, participants navigate multiple options, settling trades either through Europe-based Euroclear Bank or ClearStream Bank, or cross-border, back through Austraclear while still adhering to the same timings. Given you can’t settle after the cash payment system closes, this results in blockages towards the end of the day.”
To overcome this, it will be crucial to integrate these systems into a cohesive framework that can operate efficiently across time zones. A significant uplift and centralisation of cash and settlement systems will therefore be needed for efficient clearing of repos and bonds in Australia.
Steps towards central clearing
A signal of the case for a centrally-cleared market in Australia is the movements among potential clearing houses. The consultation process also considered the location of the prospective CCP operator.
LCH is among the entities considering an Australian launch. The LCH Group already operates across UK and European markets, with Commonwealth Bank recently joining RepoClear at LCH, the central counterparty for UK gilt repo transactions. The Australian Securities Exchange (ASX) is also reported to be assessing participation.
While the interest from potential CCP operators, alongside elevated focus among market participants, industry, and regulators, is a positive sign, many important decisions remain ahead. The benefits, including improved market efficiency, price transparency, and access have been broadly discussed. From here, selecting the right infrastructure and model requires careful consideration to bolster this important part of Australia’s financial system.
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