Perli: Repo Market Structure and Monetary Policy Implementation

Introduction

It is a pleasure to join today's workshop. Thank you to everyone at the New York Fed and Chicago Booth who helped organize this event and to Dallas Fed President Logan for moderating this panel.

In my remarks today, I will give my perspectives on recent money market conditions and the evolution of the repo market, including past and potential future implications for the Open Market Trading Desk at the New York Fed (the Desk).

Before I go further, I will give the usual disclaimer that these views are my own, and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.¹

Recent Conditions in Money Markets

I'll begin with money market conditions and the Desk's approach to reserve management purchases (RMPs).

The Federal Open Market Committee (FOMC) has directed the Desk to maintain ample reserves by increasing SOMA securities holdings, when appropriate, through RMPs.² As I've discussed previously, the FOMC's decision to begin RMPs last December and the Desk's pace of purchases from December to April were motivated by expectations for a large and rapid drain of reserves in April resulting from tax payment flows into the Treasury General Account (TGA).³ The RMP strategy ensured that the April trough in reserves was not below reserve levels seen late last year, when the FOMC determined reserves had reached ample. Money markets continued to function well and rate volatility was modest and temporary around the April tax date; all of this evidenced that the RMP strategy had produced the desired results of maintaining ample reserve conditions and ensuring interest rate control.

As expected, since the April tax date, reserve levels have increased as TGA balances have decreased. As a consequence, and consistent with past communications, the Desk has substantially and somewhat gradually reduced monthly purchases (Panel 1).⁴

Monthly RMP amounts are technical implementation decisions that are not intended to change the stance of monetary policy. They are informed by three equally important considerations: our forecast for reserve supply, our outlook for reserve demand, and our assessment of current and future money market conditions.⁵ I'll explore that last consideration a bit, looking at recent money market behavior.

As you can see from Panel 2, repo pressures around the April tax date were modest and short-lived, and the effective federal funds rate (EFFR) was stable. Treasury repo rates later notably declined, falling as low as 15 basis points below the interest rate on reserve balances (IORB) in mid-May, though they have since rebounded. Lower repo rates contributed to a two-basis-point decline in the EFFR.

Given these dynamics, two questions naturally arise: why did repo rates become so soft in May, and did softer rates imply that reserves had transitioned outside of the ample range? ⁶

From our analysis and market outreach, we identified multiple factors supporting softer rates, as outlined in Panel 3. Reserve supply increased as a result of a lower TGA balance and RMPs (first two factors on the slide), but not above levels seen in the first half of April. There also was no evidence of a material change in banks' demand for reserves. I interpret the remaining factors (seasonally low bill supply, increased dealer repo intermediation capacity, reduced repo financing demand, and a temporary increase in government-sponsored enterprise [GSE] repo investment activity) as ones that induced a downward shift in the reserve demand curve. In other words, reserves remained in the ample range, but their pricing was lower because of lower repo rates that, in turn, dragged down the federal funds rate. Panel 4 provides a stylized illustration of this. I would contrast a vertical shift in the reserve demand curve against a horizontal shift induced by changes in underlying bank reserve demand, of which, again, we have no material evidence to date, although that might change if, for example, liquidity regulations are eased (Panel 5). And I would contrast it also with movements along a static demand curve induced by changes in the supply of reserves (Panel 6).

Conceptually, the reserve demand curve can have vertical shifts up or down because of both temporary and more persistent trends in the repo market. This highlights the ongoing relevance of repo markets for the federal funds rate.⁷

Looking ahead, it's almost guaranteed that money market conditions will continue to change. One such change will happen very soon-this month and next, money markets will have to absorb a large amount of net bill issuance; as such, money market conditions may tighten, and the reserves demand curve could shift back up.

As I have said before, RMPs are not on a preset course, and the Desk can adjust amounts up or down for any given month, depending on money market conditions. Many of you will have noticed that the FOMC implementation note was changed at the June meeting to make explicit that temporary pauses in RMPs could occur if money market conditions warrant.⁸ That represents flexibility that the Desk could use in the future, for example if money market conditions eased again substantially. The Desk's strategy to determine the monthly amounts of RMPs, however, has not changed-we will continue to set those amounts with the aim of keeping reserves within the ample range.

Additionally, as you know, Chairman Warsh will be appointing a task force on the Fed's balance sheet.⁹ The Desk is well positioned to implement any changes to the balance sheet and rate control framework that the Committee might decide to pursue.

Adapting to an Evolving Repo Market Structure

Changes in money market conditions are also likely to originate from forces that reshape the structure of money markets. Indeed, as I will now discuss, such changes have happened in the past, are arguably happening now, and may well happen in the future.

Past Changes: Adoption of Tri-party Repo

Treasury repo has been around in some form for more than a century, but usage grew substantially beginning in the 1970s.¹⁰ Tri-party repo, in which a clearing bank provides settlement and other services to the repo lender and borrower, started to take hold in the mid-1980s due to its operational efficiencies and better creditor protections compared to certain other arrangements.¹¹ By the first half of the 1990s, some market observers estimated that large dealers financed over three-quarters of their Treasury positions with tri-party repo.¹²

Adapting to the evolution of the market, in 1999, the Desk began to transact in tri-party repo, thus enhancing the efficacy of Desk repo operations and monetary policy implementation. Recall that at the time there was significant concern about how the "Y2K" century date change might disrupt bank operations and financial markets. The Federal Reserve took various steps to promote smooth functioning of money markets and ensure adequate liquidity was available to the banking system.¹³ Among these, the Desk established tri-party repo agreements so it could expand the set of securities eligible for repos and reduce operational frictions for dealer counterparties. Tri-party repos became a standard part of the Fed toolkit and are still used today.^14,15

Current Changes: Central Clearing

Reflecting now on the current environment, it's clear that the repo market is again undergoing significant change, this time associated with the shift toward expanded central clearing.

The SEC's central clearing rule has the effect of requiring eligible secondary market transactions in U.S. Treasury cash securities to be cleared through a central counterparty (CCP) by the end of 2026 and eligible Treasury repo and reverse repo transactions to be centrally cleared by mid-2027.¹⁶ The industry has taken important steps to support this transition, indeed even well before these implementation deadlines.¹⁷ Repo market participants are building out capacities to transact in centrally cleared repo, and repo activity has begun migrating from uncleared to cleared markets.¹⁸

There has been significant growth in the Fixed Income Clearing Corporation's (FICC) Sponsored Service offering, which allows large firms-typically dealers-to provide clients-typically hedge funds and money market funds (MMFs)-with access to centrally cleared repo (Panel 7).¹⁹ Data indicate that MMF repo volumes cleared with FICC well exceed $1 trillion, comprising over half of MMF Treasury repo positions (Panel 8).²⁰

For firms engaging in repo market intermediation, an important benefit of central clearing is the increased ability to net repo and reverse repo transactions, which offers operational efficiencies and can reduce balance sheet costs.²¹ This brings me to the Fed's standing repo operations (SRPs), which today are not centrally cleared.

SRPs are an integral part of our monetary policy implementation toolkit, and over the past year, the Desk and FOMC have taken important steps to improve SRP effectiveness.²² There are encouraging signs that willingness to use the operations when economically sensible has increased following these actions. Still, there remain impediments to SRP use, including the balance sheet costs of repo market intermediation funded by SRP usage. Centrally clearing SRPs would be one way to reduce such costs. Strictly from a monetary policy implementation perspective, there are likely benefits from offering a centrally cleared version of SRPs. It could further improve participation by certain counterparties, which in turn would further enhance the ability of SRPs to curb money market pressure and maintain funding market stability, and therefore promote more efficient and effective monetary policy implementation.

Still, these benefits would need to be weighed against other policy considerations, as I have discussed.²³ Conceptually, the recent growth of centrally cleared repo transactions is not too dissimilar from the growth of tri-party transactions back in the 1980s and 1990s in terms of changing the market structure; Fed staff continue to evaluate the benefits and costs of centrally clearing the SRPs.

Looking Ahead: Tokenized Repo

While the move toward centrally cleared repo transactions is by now well established, there are other nascent and less mature changes and innovations that could affect money market structure, and therefore monetary policy implementation, in the future. Among these are innovations related to distributed ledger technology (DLT) and payments.

One application of such innovations can be to facilitate tokenized repo transactions.²⁴ Given the instant settlement of trades they imply, tokenized repos have potential benefits in terms of collateral management and tailoring transactions to specific funding needs. Several providers are now offering or developing tokenized repos.

This is a nascent market, and to date tokenized repos appear driven by certain intraday and intracompany transactions; however, it's easy to imagine how usage could deepen and broaden out in the future. Conceptually, greater adoption of tokenized repos could be impactful for how market participants manage their overall liquidity positions. A deep and liquid intraday market might enhance collateral management and reduce some frictions in managing intraday liquidity, which could reduce banks' demand for reserves for payment purposes. This could induce a leftward shift in the overall reserve demand curve and, everything else equal, result in a lower ample reserves range and a smaller Fed balance sheet.

But this is only one part of the picture, and a broader shift in the market landscape to continuous, instant trading and payments may have more mixed implications for bank balance sheet management and demand for reserves. Banks may see higher levels of gross payment flows, and the instant settlement of transactions could reduce netting opportunities and impact firms' preferences to hold more precautionary liquidity in the form of reserves. Indeed, the Federal Reserve's most recent Senior Financial Officer Survey sheds some light on this. Panel 9 shows the average weighting that SFOS respondents placed on factors influencing their preferred reserve levels (note the boxes around payments-related technology factors). Respondents widely noted that movement toward instant 24/7 payments could increase their demand for reserves, and some also indicated that greater adoption of payment stablecoins could have similar implications.²⁵

In any case, the Fed's ample reserves framework is well equipped to handle shifts in the demand for reserves driven by changes in technology, regulations, or other factors. As you can imagine, the Desk is monitoring developments in these areas very closely.

Greater use of tokenization could of course have broader implications for monetary policy implementation beyond just shifts in reserve demand. Through the New York Innovation Center in the Markets Group at the New York Fed, and in collaboration with the Bank for International Settlements (BIS), staff have conducted research projects around technological innovation.²⁶ For example, the Innovation Center's Project Cedar examined tokenization's market structure impacts, and Project Pine explored the development of smart contract tools for monetary policy operations in tokenized environments and highlighted areas for further research related to the interoperability of blockchains, collateral management, and the standardization of data collection.^27,28

To sum it all up, the structure of the repo market is constantly evolving, and we closely monitor these changes to understand the implications for monetary policy implementation. In the past, the Desk has adapted its operations to align with changes in market structure and the Fed's monetary policy implementation framework. I am confident that we can further adapt operations in the future, as needed, to maintain strong interest rate control and to implement monetary policy effectively and efficiently.

Thank you. I look forward to hearing from my fellow panelists and to our discussion.

Presentation

¹ I would like to thank Eric LeSueur and Maneesha Shrivastava for their assistance in preparing these remarks, and Amulya Natchukuri and Zack Youngblood for their assistance with the presentation.

² See, for example, Board of Governors of the Federal Reserve System, Implementation Note issued June 17, 2026.

³ See, for example, Roberto Perli, Reflections on the Early Days of Reserve Management Purchases and the Maintenance of Ample Reserves, Remarks before the Money Marketeers of New York University, New York City, March 26, 2026, and Roberto Perli, Reserve Management and the Fed's System Open Market Account: Recent Experience and Insights from Surveys, Remarks at the Federal Reserve Bank of Atlanta 2026 Financial Markets Conference, Fernandina Beach, Florida, May 19, 2026.

⁴ In December 2025, the Committee initiated purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves. See Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement, December 10, 2025, and reserve management purchase amounts announced monthly by the Federal Reserve Bank of New York.

⁵ See Perli (May 2026).

⁶ Ample reserves refer to a range, not a specific quantity, over which the federal funds rate is only modestly sensitive to changes in the supply of reserves. See, for example, Perli (March 2026).

⁷ Repo rates were clearly relevant for the move higher in the EFFR from mid-September through November 2025. See Perli (March 2026).

⁸ Specifically, the phrase "when appropriate" was added to the following: "When appropriate, increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves." See Board of Governors of the Federal Reserve System, Implementation Note issued June 17, 2026.

⁹ See Board of Governors of the Federal Reserve System, Transcript of Chairman Warsh's Press Conference, June 17, 2026.

¹⁰ See discussion in Kenneth D. Garbade, The Evolution of Repo Contracting Conventions in the 1980s, FRBNY Economic Policy Review, May 2006.

¹¹ Creditor losses following some dealer failures in the 1980s highlighted inadequate protections associated with "hold-in-custody" repo arrangements. See Garbade (2006) and Susan McLaughlin and Antoine Martin, Financial Innovation: The Origins of the Tri-Party Repo Market, May 11, 2015.

¹² Garbade (2006).

¹³ See, for example, Federal Reserve Bank of New York, Changes in Open Market Operations Procedures in Relation to Year-end Markets, September 8, 1999, and Domestic Open Market Operations During 1999, published February 2000.

¹⁴ In 2009, the Desk began developing operational capacity to conduct tri-party reverse repos, which eventually supported the Desk's ability to transact with expanded counterparties such as money market funds and GSEs through overnight reverse repo (ON RRP) operations and allowed ON RRPs to act as an effective interest rate control tool. See Federal Reserve Bank of New York, Statement Regarding Reverse Repurchase Agreements, October 19, 2009. See also Board of Governors of the Federal Reserve System, Policy Tools: Overnight Reverse Repurchase Agreement Operations.

¹⁵ The global financial crisis highlighted systemic risks related to tri-party repo infrastructure. The Task Force on Tri‐Party Repo Infrastructure was established in September 2009 by the Federal Reserve Bank of New York to develop options for changes to tri-party repo market infrastructure, settlement processes, and data availability. See additional information on the task force and changes made to tri-party repo infrastructure at Federal Reserve Bank of New York, Tri-Party Repo Infrastructure Reform.

¹⁶ See more details at U.S. Securities and Exchange Commission (SEC), Treasury Clearing Implementation.

¹⁷ See discussions regarding industry progress toward central clearing and industry scoping issues in Treasury Borrowing Advisory Committee (TBAC), Central Clearing Implementation, May 2026.

¹⁸ Office of Financial Research (OFR) staff analysis implies that in the first 8 months of 2025, approximately 58 percent of repo volumes subject to the clearing rule were already being cleared. See Ashlyn Cenicola, John Heilbron, Robert Mann, and Mark Paddrik, How Will Central Clearing Impact the Repo Market?, January 29, 2026, and related discussion in TBAC (May 2026).

¹⁹ FICC was previously the sole clearing agency for Treasuries, hence the focus on growth in FICC repo activity. In the last year, SEC has approved two additional clearing agencies, CME Securities Clearing and ICE Clear Credit.

²⁰ Calculated from SEC Form N-MFP data. Form N-MFP captures month-end portfolio positions.

²¹ See, for example, Michelle Neal, Central Clearing in the U.S. Treasury Market: The Why and the How, Remarks at the Treasury Clearing Forum: The Evolution of Agency Clearing, Futures Industry Association (FIA), New York City, October 15, 2024, and discussion in TBAC, Developments in Central Clearing in the U.S. Treasury Market, February 2025.

²² See, for example, Perli (May 2026) and Dean Friedberg, Michael Koslow, Jason Miu, and Roberto Perli, Surveys Suggest Improved Willingness by Counterparties to Use Standing Repo Operations, May 14, 2026.

²³ See Perli (May 2026). The minutes of the October 2025 FOMC meeting contain a summary of benefits and challenges associated with centrally cleared SRP operations as well as policymaker views. See Board of Governors of the Federal Reserve System, Minutes of the Federal Open Market Committee, October 28-29, 2025.

²⁴ Tokenization is the transformation of securities into representative digital tokens whose transactions are recorded on a blockchain.

²⁵ Summary SFOS results are available at Board of Governors of the Federal Reserve System, Senior Financial Officer Survey, March 2026. Survey respondents provided written responses to questions about the impacts of factors on their preferred reserve levels.

²⁶ See Federal Reserve Bank of New York, New York Innovation Center, and Lisa Chung, Evolving Market Structure and the Desk's Role, Remarks at the Fifth Conference on the International Roles of the U.S. Dollar, Board of Governors of the Federal Reserve System, Washington, D.C., June 22, 2026.

²⁷ See New York Innovation Center at the Federal Reserve Bank of New York, Project Cedar.

²⁸ Project Pine created a customizable monetary policy tokenized toolkit in consultation with advisers from multiple central banks. For greater detail, see New York Innovation Center at the Federal Reserve Bank of New York and BIS Innovation Hub, Project Pine: Central bank open market operations with smart contracts, May 2025.