A Study On Market Liquidity Of China 's Inter - Bank Bond Repurchase

Interbank repo market is an important part of the interbank bond market and it is also the bridge between the money market and the capital market. Commercial banks, insurance companies, securities companies and other institutional investors are the main participants. Interbank repo market plays an important role in broadening the investors’financing channels, promoting the implementation of monetary policy and realizing interest marketization. Market liquidity is related to trading products, trading mechanism, market participants’behavior and it affects the efficiency of capital allocation, asset liability structure, transaction costs and profitability. Even more, it influences the stability and development of China’s financial markets. With the development of the interbank repo market, the macroeconomic environment and the internal structure of the market is constantly changing. So, effective measure of market liquidity, checking the financing efficiency and solving the illiquid factors are needed.At first, according to previous research, we sum up the definition of market liquidity, measurement methods and influencing factors of market liquidity. Then, according to the character of our interbank repo market, we give the definition of China’s interbank repo market liquidity, establish market liquidity measurement indicators which fits to our market condition. We also investigate the influence of the repo market liquidity on the efficiency of financing from commercial banks point of view. From the interbank repo market analysis, we can draw the conclusion that interbank repo market develop rapidly; market liquidity improve significantly; participants and products become various. But it also should be noticed that pledged repo plays an important role in the entire repo market. Improvement of market liquidity in pledged repo and that of buyout repo is different. Turnover rate of credit bond is low. During the financial crisis, China’s repo market was also affected. Compared with pre-crisis, turnover rate went down. Repo rate and trading volume fluctuated. These phenomenon meant that there was a bad market liquidity. Repo market liquidity and cost of excess reserves held by banks is negatively correlated.U.S. and European repo markets, especially the tri-party repo market performed differently during the financial crisis. The U.S. repo market faced a "collateral crisis", which pulled the tri-party repo market into the crisis. The size of the market in the short term fell sharply. This resulted in the bankruptcy of two big investment banks. In contrast, the European tri-party repo market worked steady, which provide liquidity to financial institutions. From the aspect of market participants, collateral structure, the European repo market is more similar to that of our country, and therefore we can learn experience to improve our market liquidity.In the future, on the basis of implementation of China Master Repurchase Agreement (2013Version), repo market needs to focus on the construction of infrastructure of market, improving repo market mechanisms, choosing a good time to establish our tri-party repo market in order to achieve good market liquidity.