# Afonso, Choi, Cisternas and Riordan explain repo market structures [Canonical reading](https://escapemeridian.com/readings/afonso-choi-cisternas-and-riordan-explain-repo-market-structures-15a1b0cb) The Federal Reserve Bank of New York post by Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas and Will Riordan, published September 29, 2026, explains why U.S. repo markets use different arrangements for lending, clearing and settlement. The authors argue that each arrangement reflects participants’ different needs and the costs they are willing to bear. Cash-rich money market funds often lend to dealers through tri-party repo, outsourcing collateral management to a clearing bank. Dealers and hedge funds often trade bilaterally, where flexibility in accessing particular securities and typically lower haircuts can suit leveraged strategies. Central clearing can reduce balance sheet costs and counterparty risk, but requires contributions to a default fund and higher margining. The authors describe a growing share of repo activity as centrally cleared, including lending by money market funds and dealer lending to hedge funds. They also explain why bilateral trades can remain useful: a “netted package” can combine repo and reverse repo trades with the same counterparty to mitigate balance sheet costs without central clearing. Their conclusion is that no single structure fits every participant: settlement costs, balance sheet costs and contracting choices shape the different segments. How will the benefits and costs of central clearing affect the balance between these arrangements? Headline and summary by Escape Meridian, prepared by Luna from the attributed source. A source check is not independent confirmation of the source’s claims. ## Original source Federal Reserve Bank of New York · Article Original source date: Sep 29, 2026 (2026-09-29T11:00:00.000Z). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-11-05T12:38:23.382Z. First observed: 2026-10-30T19:32:18.301Z. Retrieved: 2026-10-30T20:54:04.262Z. - [Follow the Cash! Microstructure of Repo Markets](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Limits Text as retrieved on October 30, 2026; originally published September 29, 2026. The post describes market arrangements and trade-offs; it does not establish how future changes in clearing requirements will affect their balance. ## Open question How will the benefits and costs of central clearing affect the balance between these repo market arrangements? ## Source-stated The post was published on September 29, 2026, and is authored by Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas and Will Riordan. > September 29, 2026 > Follow the Cash! Microstructure of Repo Markets > Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas, and Will Riordan - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors argue that the different repo market structures reflect participants’ distinct evaluations of transaction trade-offs. > The various microstructures of repo segments observed in the U.S. reflect how a heterogeneous set of participants evaluate the trade-offs involved in repo transactions differently. - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors say tri-party repo allows participants to outsource collateral management for settlement to an agent. > This segment of the market, where the parties outsource to an agent the collateral management to settle repo, is known as the tri-party repo market. - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors describe benefits and costs of central clearing, including reduced balance sheet costs and counterparty risk, alongside default-fund contributions and higher margining. > These benefits, however, do not come for free, as they require contributing to a default fund and higher margining - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors say hedge funds’ bilateral repo trades can offer more flexibility and typically lower haircuts, while netted packages may mitigate balance sheet costs without a central counterparty. > The bilateral segment provides hedge funds more flexibility along the first dimension relative to the tri-party segment, where the collateral stays with the clearing bank. Regarding the second, haircuts are typically lower in this segment - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors conclude that settlement costs, balance sheet costs and creative contracting help explain the different repo structures. > Costs related to the settlement of securities led to the emergence of tri-party repo; balance sheet costs favor central clearing; meanwhile, creative contracting—such as netted packages—mitigates costs in bilateral, non-centrally cleared repos. - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source and contributor context Federal Reserve Bank of New York · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Repurchase agreement A secured money-market transaction in which securities are bought under an agreement to resell them later. It works like a loan backed by securities; when the Fed does it, it temporarily adds bank reserves. - [Definition reference](https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements) ## Reverse repurchase agreement The other side of a repo: securities are sold under an agreement to buy them back later. It works like borrowing backed by securities; when the Fed does it, it temporarily drains bank reserves. - [Definition reference](https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements) ## Editorial provenance Version 1. Publication ID: e6dfd947-d14d-abf9-cd9e-7c1a5762631c. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: uncertain by anthropic/claude-opus-5.5 on 2026-11-05T12:33:43.682Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: f456387b3a5f152f087b9c001502a7c4bfca50603d6847a6b243c4185c39cbb7. Source text hash: 710d8a467384608b013ac540dbb468df608f55d3825e681eab79ee0f10abed04. ## Revision and source-check history ### Version 1 — 2026-11-05T12:38:23.382Z The Federal Reserve Bank of New York post by Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas and Will Riordan, published September 29, 2026, explains why U.S. repo markets use different arrangements for lending, clearing and settlement. The authors argue that each arrangement reflects participants’ different needs and the costs they are willing to bear. Cash-rich money market funds often lend to dealers through tri-party repo, outsourcing collateral management to a clearing bank. Dealers and hedge funds often trade bilaterally, where flexibility in accessing particular securities and typically lower haircuts can suit leveraged strategies. Central clearing can reduce balance sheet costs and counterparty risk, but requires contributions to a default fund and higher margining. The authors describe a growing share of repo activity as centrally cleared, including lending by money market funds and dealer lending to hedge funds. They also explain why bilateral trades can remain useful: a “netted package” can combine repo and reverse repo trades with the same counterparty to mitigate balance sheet costs without central clearing. Their conclusion is that no single structure fits every participant: settlement costs, balance sheet costs and contracting choices shape the different segments. How will the benefits and costs of central clearing affect the balance between these arrangements? ## Original source Federal Reserve Bank of New York · Article Original source date: Sep 29, 2026 (2026-09-29T11:00:00.000Z). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-11-05T12:38:23.382Z. First observed: 2026-10-30T19:32:18.301Z. Retrieved: 2026-10-30T20:54:04.262Z. - [Follow the Cash! Microstructure of Repo Markets](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Limits Text as retrieved on October 30, 2026; originally published September 29, 2026. The post describes market arrangements and trade-offs; it does not establish how future changes in clearing requirements will affect their balance. ## Open question How will the benefits and costs of central clearing affect the balance between these repo market arrangements? ## Source-stated The post was published on September 29, 2026, and is authored by Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas and Will Riordan. > September 29, 2026 > Follow the Cash! Microstructure of Repo Markets > Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas, and Will Riordan - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors argue that the different repo market structures reflect participants’ distinct evaluations of transaction trade-offs. > The various microstructures of repo segments observed in the U.S. reflect how a heterogeneous set of participants evaluate the trade-offs involved in repo transactions differently. - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors say tri-party repo allows participants to outsource collateral management for settlement to an agent. > This segment of the market, where the parties outsource to an agent the collateral management to settle repo, is known as the tri-party repo market. - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors describe benefits and costs of central clearing, including reduced balance sheet costs and counterparty risk, alongside default-fund contributions and higher margining. > These benefits, however, do not come for free, as they require contributing to a default fund and higher margining - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors say hedge funds’ bilateral repo trades can offer more flexibility and typically lower haircuts, while netted packages may mitigate balance sheet costs without a central counterparty. > The bilateral segment provides hedge funds more flexibility along the first dimension relative to the tri-party segment, where the collateral stays with the clearing bank. Regarding the second, haircuts are typically lower in this segment - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source-stated The authors conclude that settlement costs, balance sheet costs and creative contracting help explain the different repo structures. > Costs related to the settlement of securities led to the emergence of tri-party repo; balance sheet costs favor central clearing; meanwhile, creative contracting—such as netted packages—mitigates costs in bilateral, non-centrally cleared repos. - [Supporting source](https://libertystreeteconomics.newyorkfed.org/2026/09/follow-the-cash-microstructure-of-repo-markets/) ## Source and contributor context Federal Reserve Bank of New York · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Repurchase agreement A secured money-market transaction in which securities are bought under an agreement to resell them later. It works like a loan backed by securities; when the Fed does it, it temporarily adds bank reserves. - [Definition reference](https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements) ## Reverse repurchase agreement The other side of a repo: securities are sold under an agreement to buy them back later. It works like borrowing backed by securities; when the Fed does it, it temporarily drains bank reserves. - [Definition reference](https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements) ## Editorial provenance Version 1. Publication ID: e6dfd947-d14d-abf9-cd9e-7c1a5762631c. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: uncertain by anthropic/claude-opus-5.5 on 2026-11-05T12:33:43.682Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: f456387b3a5f152f087b9c001502a7c4bfca50603d6847a6b243c4185c39cbb7. Source text hash: 710d8a467384608b013ac540dbb468df608f55d3825e681eab79ee0f10abed04. ### uncertain — 2026-11-05T12:33:43.682Z — anthropic/claude-opus-5.5 Publication: e6dfd947-d14d-abf9-cd9e-7c1a5762631c attribution — pass: The reading correctly credits the Federal Reserve Bank of New York Liberty Street Economics post to Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas and Will Riordan. It keeps the arguments attributed to the authors. > Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas, and Will Riordan summary — uncertain: The summary is faithful, and repo and reverse repo are defined beside the reading. However, two central terms are left unexplained for a general reader. 'Central clearing' is never described as a central counterparty becoming the counterparty to every trade. 'Haircuts' is also undefined, and the bilateral-trade argument depends on it. Smallest repair: add a plain-language clause for each term, or term-library entries for central clearing and haircut. > Most interdealer trades clear through a central counterparty which becomes the counterparty to every trade. date — pass: originalPublished is 2026-09-29T11:00Z, and the stated date of September 29, 2026 matches the UTC day and the source dateline. The reading presents no forecast as an outcome. The SEC June 2027 requirement is not used. There is no hindsight framing. The kind is publisher-page, so no archive disclosure is needed. > September 29, 2026 Follow the Cash! Microstructure of Repo Markets support — pass: The claims about tri-party repo, the costs and benefits of central clearing, bilateral flexibility and lower haircuts, netted packages, and the rising share of central clearing are all grounded in the text. The question and limitations do not overstate anything. The reading implies no unsupported benefits or costs. > MMF lending in the centrally cleared segment has increased sharply over the past three years, reaching almost 40 percent of MMF repo activity in 2026:Q1 media — pass: No media was selected, and no verified media candidates were supplied, so leaving media empty is appropriate. ## Recorded references Explicit citations in public readings and public file attachments to this reading. Shared topics are not citations. Other artifact types need an explicit reference adapter. No public references recorded here yet. [Reference data (JSON)](/readings/15a1b0cb0327fcc7df0d9d97d89dd3730136eb10bad43e25a0699fd2ef9d7e8d/references.json) ## Corrections and challenges [Send a correction or an opposing source](https://escapemeridian.com/corrections/) [JSON record](https://escapemeridian.com/readings/afonso-choi-cisternas-and-riordan-explain-repo-market-structures-15a1b0cb.json)