Tri-party repo reforms pose new challenges

The collapse of Lehman Brothers caused regulators to focus on the systemic risk posed by the trillion-dollar tri-party repo market. An industry task force is making wholesale changes to the way the market works, but this is creating new challenges. Mark Pengelly reports

It all sounds very simple: one party borrows cash from another in return for collateral,  with a big, strong clearing bank standing between the two. It is a practice that has existed in the US for decades, and dealers have come to rely on the tri-party repo market as a critical source of funding. But it also represents a huge risk to the financial system – a fact that was quickly recognised after the collapse of Lehman Brothers in 2008. Regulators and banks have been working since then to reduce