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Securities financing and asset markets: new evidence

Author

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  • Tomas Breach
  • Thomas B King

Abstract

Using survey data on secured funding arrangements provided by broker–dealers for their clients—a class of contracts that includes bilateral repo—we document that financing rates, collateral haircuts, lending maturities, and position limits move strongly together over time and across asset classes. Liquidity of the underlying securities, as opposed to their volatility or credit risk, is the main driver of this behavior, with dealer balance-sheet constraints also playing a role in the funding of less-liquid security types. A simple model of dealer–client interaction rationalizes these findings. Instrumenting with changes in market conventions, we find that funding conditions had little effect on cash securities markets between 2011 and 2019, but the tightening of terms during the market stress of early 2020 likely impaired liquidity and reduced asset returns to some degree.

Suggested Citation

  • Tomas Breach & Thomas B King, 2025. "Securities financing and asset markets: new evidence," Review of Finance, European Finance Association, vol. 29(1), pages 33-73.
    • Handle: RePEc:oup:revfin:v:29:y:2025:i:1:p:33-73.
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    File URL: http://hdl.handle.net/10.1093/rof/rfae033
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    More about this item

    Keywords

    repo; broker-dealers; market liquidity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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