In today’s interconnected financial system, few markets play as pivotal a role as securities lending and repurchase agreements. Under scrutiny for their opacity and complexity, these markets have drawn increasing attention from regulators and policymakers. With calls for enhanced reporting, post-trade transparency and risk management, and new clearing mandates, participants face a rapidly evolving landscape. This article delves into the mechanics, scale, and regulatory shifts shaping securities lending and repo, highlighting pathways toward a more resilient and transparent market.
What Are Securities Lending and Repo Markets?
Securities lending involves the temporary transfer of securities—such as equities, bonds, and exchange-traded funds—from a lender to a borrower, typically a hedge fund or dealer. The borrower provides collateral, which may be in the form of cash or other assets, and pays a fee or spread for the transaction. This arrangement supports incremental income for asset owners like pension funds, insurers, and sovereign wealth funds.
Repurchase agreements, or repos, constitute a short-term secured funding mechanism. One party sells securities—often government bonds—and agrees to repurchase them at a predetermined price on a future date. This trade effectively functions as a collateralized loan, underpinning wholesale funding and collateral transformation for banks, dealers, and hedge funds.
Why These Markets Matter
Both securities lending and repo markets are systemically important sources of collateral and liquidity. By channeling leverage to non-bank entities and facilitating trades in Treasury and equity markets, they serve as the plumbing of global finance. Their uninterrupted operation is essential for:
- Facilitating short selling, hedging, and market-making
- Optimizing balance sheet efficiency for financial institutions
- Supporting monetary policy implementation through central bank operations
- Generating incremental fee revenue for beneficial owners
Despite their importance, these markets have historically operated with limited public visibility, giving rise to concerns about hidden concentrations of risk.
Market Size, Revenues, and Growth Trends
The global securities lending market has demonstrated robust growth. Industry estimates place 2024 revenues between US$10.5 billion and US$12.16 billion, with forecasts projecting figures of up to US$21.50 billion by 2034. Annual growth rates range from 5.4% to 5.7%, driven by demand from hedge funds and expanding activities in emerging regions.
A breakdown of securities lending revenues highlights that equities contribute roughly 74% of fees, with hedge funds accounting for about 86% of borrower-driven income. North America retains the largest share at 41%, while the LAMEA region (Latin America, Middle East, and Africa) leads in growth, with a projected CAGR of 8.9% through 2034.
- April 2025 global lending revenue: US$856 million (+1.18% YoY)
- June 2025 monthly revenue: US$1.455 billion
- July 2025 record high: US$1.577 billion, fueled by ETF lending
- October 2025 beneficial owner revenue: US$1.08 billion (+37% YoY)
Meanwhile, the U.S. repo market dwarfs many estimates, with gross positions of approximately US$11.9 trillion in 2024. Growth accelerated in 2023, adding over US$1.2 trillion in repo and US$0.9 trillion in reverse repo, as money market funds increased their allocations to more than US$3 trillion.
Structural Role of Repo
Repos underpin short-term funding and serve as a key channel for dealers to intermediate cash from money market funds to hedge funds. Studies link hedge-fund borrowing to the cash-futures Treasury basis trade, highlighting the interplay between leverage and market-making strategies. Insurers also ramped up repo exposures, with life insurers representing 96% of their activities, and total borrowing reaching about US$6.2 trillion by mid-2024.
This table illustrates the vast scale of these interconnected markets and underscores the urgency of robust oversight.
Regulatory Spotlight: Transparency and Central Clearing
In response to episodes of stress—most notably the 2008 financial crisis and the COVID-19–induced dash for cash—authorities have prioritized reforms to close data gaps and historical opacity. Policymakers aim to strengthen resilience by mandating trade-level reporting and public data to central repositories and by requiring more transactions to flow through central counterparties (CCPs) in clearing.
The U.S. Securities and Exchange Commission has introduced a phased rule requiring central clearing of Treasury repos executed under Master Repurchase Agreements. With full implementation slated for June 2027, covered entities must route eligible trades through clearinghouses like FICC, which reported volumes exceeding US$2 trillion by March 2025.
Challenges and Data Gaps
Despite progress, significant hurdles remain. Divergent reporting frameworks across jurisdictions complicate aggregated analysis, and many bilateral transactions continue outside the clearing ecosystem. Trade repositories must reconcile disparate data formats, and market participants face operational burdens in upgrading systems and documentation.
Moreover, securities lending desks that reinvest cash collateral through repo must adapt to the new clearing requirements, overhauling agency lending cash reinvestment processes and adhering to stricter margin and collateral optimization standards.
Looking Ahead: Building a More Resilient Market
The path forward hinges on collaboration between regulators, central counterparties, and market participants. Investments in data analytics, trade reporting, and collateral management infrastructure will be critical. By embracing digital solutions—such as distributed ledger technology and advanced reconciliation tools—stakeholders can enhance transparency and reduce settlement risks.
Ultimately, the goal is a more transparent and risk-aware marketplace where participants can allocate capital with confidence, regulators can identify emerging vulnerabilities, and the financial system as a whole becomes more robust. As reforms take hold, the securities lending and repo markets will continue to evolve, balancing liquidity provision with the imperative of safeguarding systemic stability.
This regulatory spotlight illuminates not only the challenges of today but also the opportunities to forge a clearer, stronger foundation for global finance.
