Demystifying the Repo Market: Part II

a deep dive into the repo market for dealers

Despite evolving into the most crucial dollar funding mechanism, the U.S. repo (repurchase agreements) market has remained relatively obscure. In just the triparty segment (covered in Part I) alone, trillions of dollars change hands daily with little transparency. Behind the scenes, the Fed’s primary dealers raise dollars from global cash investors to enable the speculative activities of numerous financial players, from highly leveraged hedge funds to Wall Street behemoths. Still, triparty only scratches the surface of the repo colossus, acting merely as a funding layer for numerous other markets, each more elaborate and specific in its purpose than its closest counterpart.

Next in this hierarchy lies the interdealer (dealer-to-dealer) market, known officially as GCF repo, where traders on dealer desks battle among themselves to earn the juiciest market-making spreads while providing liquidity to the wider repo ecosystem.

GCF repo, the interdealer market (highlighted in green)

In this subscriber special, we’ll demystify the inner workings of the interdealer market, unveiling in detail through visuals and plain English (wherever possible) how GCF repos help to form the most influential chains in global finance. Let’s dive in.