Tri-Party Repo Pricing

51 Pages Posted: 30 Nov 2014 Last revised: 2 Apr 2018

See all articles by Grace Xing Hu

Grace Xing Hu

PBC School of Finance, Tsinghua University

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 29, 2018

Abstract

We document the central role of collateral in the pricing of tri-party repos. Markets are competitive for repos with safe collaterals, but are severely segmented for repos with risky collaterals such as equities and low-grade corporate bonds. Fund families are the sole contributors of the segmentation, and collateral concentration is the main determinant in the substantial variation in repo pricing, both across and within segments. The segmented structure points to Fidelity as a systemically important player and the market’s potential fragility. Facing market segmentation, dealers optimize financing cost by allocating their collateral across fund families.

Keywords: Tri-Party Repo, Pricing, Haircut, Money Market Funds

JEL Classification: G12

Suggested Citation

Hu, Grace Xing and Pan, Jun and Wang, Jiang, Tri-Party Repo Pricing (March 29, 2018). Available at SSRN: https://ssrn.com/abstract=2531943 or http://dx.doi.org/10.2139/ssrn.2531943

Grace Xing Hu (Contact Author)

PBC School of Finance, Tsinghua University ( email )

43 Chengfu Road
Haidian District
Beijing, Beijing 100083
China

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E62-614
100 Main Street
Cambridge, MA 02142
United States
617-253-2632 (Phone)
617-258-6855 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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