The forthcoming United States Securities and Exchange Commission (SEC) mandate requiring central clearing for US Treasury (UST) repo transactions by 2027 will fundamentally reshape market structure, especially for buy-side participants like money market funds (MMFs) that dominate cash lending in the cleared repo space. Using a month-end panel of MMF holdings from 2020 to 2025, we estimate the “cost of clearing,” defined as the spread between uncleared and cleared repo rates and analyze its drivers through a regression framework.

Our results suggest higher Fixed Income Clearing Corporation (FICC) Sponsored volumes reduce the cost of clearing, indicating that netting efficiencies and economies of scale improve as the cleared market grows. Conversely, larger MMF assets tend to widen the spread, while increased MMF repo volumes partially offset this effect. Collateral and macro liquidity conditions – such as System Open Market Account coupon holdings, net UST coupon issuance and dealer balance-sheet stress – also influence the cost of clearing in asymmetric ways.

These findings demonstrate that the cost of clearing is not a fixed wedge but a macro-sensitive spread, and as volumes migrate to central clearing under the mandate, economies of scale and new clearing models are likely to structurally compress clearing costs for MMFs. This has implications on pricing, venue selection and liquidity planning for buy-side lenders and their clearing providers.