Tri-Party Repo Pricing

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