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Trading relationships in secured markets: Evidence from triparty repos

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  • Han, Song
  • Nikolaou, Kleopatra
  • Tase, Manjola

Abstract

The Triparty Repo (TPR) market lies at the heart of the US short-term funding markets. This paper demostrates the existence of strong and stable relationships between investors (Money Market Funds) and dealers in this market, which can significantly affect terms of trade (the probability of a trade and the volume and, to some extent, the price of actual trades). Importantly, such relationships support the funding role of the TPR market, as dealers can rely on such relationships to secure funding in the face of liquidity shocks. We consider two shocks: (i) the Federal Reserve’s Overnight Reverse Repurchase (ON RRP) operations, a negative shock to the supply of funds for dealers; and (ii) Treasury auctions, a positive shock to the demand for funds by dealers. Our results suggest that relationships provide a built-in mechanism in the TPR market to support stability in face of funding shocks.

Suggested Citation

  • Han, Song & Nikolaou, Kleopatra & Tase, Manjola, 2022. "Trading relationships in secured markets: Evidence from triparty repos," Journal of Banking & Finance, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:jbfina:v:139:y:2022:i:c:s0378426622000851
    DOI: 10.1016/j.jbankfin.2022.106486
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    References listed on IDEAS

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    6. Li, Yi, 2021. "Reciprocal lending relationships in shadow banking," Journal of Financial Economics, Elsevier, vol. 141(2), pages 600-619.
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    Cited by:

    1. Hüser, Anne-Caroline & Lepore, Caterina & Veraart, Luitgard Anna Maria, 2024. "How does the repo market behave under stress? Evidence from the COVID-19 crisis," Journal of Financial Stability, Elsevier, vol. 70(C).
    2. Carlos Cañón & Jorge Florez-Acosta & Karoll Gómez, 2023. "The effects of two-way lending between financial conglomerates in bilateral repo markets," Borradores de Economia 1246, Banco de la Republica de Colombia.
    3. Huber, Amy Wang, 2023. "Market power in wholesale funding: A structural perspective from the triparty repo market," Journal of Financial Economics, Elsevier, vol. 149(2), pages 235-259.
    4. Eisenschmidt, Jens & Ma, Yiming & Zhang, Anthony Lee, 2024. "Monetary policy transmission in segmented markets," Journal of Financial Economics, Elsevier, vol. 151(C).
    5. Hüser, Anne-Caroline & Lepore, Caterina & Veraart, Luitgard A. M., 2024. "How does the repo market behave under stress? Evidence from the COVID-19 crisis," LSE Research Online Documents on Economics 121347, London School of Economics and Political Science, LSE Library.
    6. Pala, Melissa, 2024. "COVID-19 and the fragmentation of the European interbank market," Discussion Papers 07/2024, Deutsche Bundesbank.
    7. Kahn, R. Jay & McCormick, Matthew & Nguyen, Vy & Paddrik, Mark & Young, H. Peyton, 2023. "Anatomy of the Repo Rate Spikes in September 2019," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 5(4), pages 1-25, July.
    8. Pala, Melissa, 2023. "COVID-19 and the Fragmentation of the European Interbank Market," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277572, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Triparty repos; Over-the-counter (OTC) markets; Trade relationships; ON RRP exercise; Treasury auctions; Liquidity shock;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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