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Financial Firms Move Closer to Central Clearing in Repo Market

Financial institutions in the almost $2 trillion a day market for borrowing and lending debt are close to unveiling centralized trade clearing systems to minimize risk in the essential wholesale funding mechanism.

The Federal Reserve has been pushing firms to decrease the risk that a large dealer default, such as the collapse of Lehman Brothers Holdings Inc., triggers broad dislocations in the repurchase-agreement market, where banks typically borrow cash for a short time from investors using securities as collateral. The movement of repo transactions to clearing houses, which pool capital, would help ensure losses at one firm don’t harm all trading partners.