Finance Seminar（2016-22）

Topic: Tri-Party Repo Pricing

Speaker: Grace Xing Hu, University of Hong Kong

Time: Wednesday, 23 November, 10:00-11:30

Place: Room 217, Guanghua Building 2

Abstract:

In this paper, we examine the pricing determinants in the systemically important tri-party repo market. Taking advantage of the recently available N-MFP reports filed by money market funds, we construct a novel dataset that contains tri-party repo transactions between money market funds and dealer banks. We find a large cross-sectional heterogeneity in repo pricing, reflected most significantly in the haircuts of repos backed by equity and corporate bonds. Surprisingly, it is the fund families, not bank dealers, who are the dominant factor in determining the pricing. Moreover, the repo market exhibits significant segmentation, with fund families adopting three different pricing schemes: counter-party sensitive, counter-party and collateral sensitive, and uniform. Most fund families use uniform haircuts by fixing a constant haircut, which itself varies across families, for all repos within each asset class, regardless of the quality of collateral or counter-party. Investigating further on the lending/ borrowing relationship between fund families and dealers, we find that, when faced with such a rich pricing pattern, dealers do not shop around for a better haircut and are inclined to maintain a stable relationship with their lenders. Finally, for repos backed by Treasury securities, there is little variation in both haircuts and spreads, regardless of the fund family.

Introduction:

Dr. Grace Xing Hu received her PhD in Economics from Princeton University, and joined The University of Hong Kong in 2011. She also holds a BS in Computer Science from University of Science and Technology of China and a MS from Northwestern University. She has a joint appointment as Assistant Professor of Finance in the School of Economics and Finance and the School of Business. Dr. Hu's research focuses on empirical asset pricing, in particular, liquidity, credit risk and financial crises.

//www.sef.hku.hk/~gracexhu

Your participation is warmly welcomed!