On August 22, 2017 the Board of Governors of the Federal Reserve System (“Fed”) issued a notice and request for comment (the “Notice”) with respect to the proposed publication by the Federal Reserve Bank of New York (“FRBNY”) of three overnight repurchase agreement rates on U.S. Treasury securities. The Notice states that publication of the rates is “targeted to commence by mid-2018” and is “intended to improve transparency into the repo market by increasing the amount and quality of information available about the market for overnight Treasury repo activity.”
The three proposed rates are as follows:
- Tri-Party General Collateral Rate: Rate is based on tri-party repo market for U.S. Treasuries but excludes GCF Repo and transactions in which the Fed is a counterparty.
- Broad General Collateral Rate: Rate includes the tri-party data of the first rate but also includes GCF repo data. The Notice notes that “idiosyncratic pricing behavior over month- and quarter-ends in the GCF Repo transaction base could result in divergence from other money market rates depending on relative volume in the GCF Repo market.”
- Secured Overnight Financing Rate: The broadest rate which includes the data in the Broad General Collateral Rate plus bilateral Treasury repo transactions cleared through FICC’s DVP service (filtered to exlude “specials”).
The following calculation methodologies would apply to the rates:
- A volume weighted median would be used as the central tendency measure
- The FRBNY would publish summary statistics to accompany the publication of the rate “which would consist of the 1st, 25th, 75th and 99th volume-weighted percentile rates, as well as volumes.”
- Daily publication time of 8:30 EST
- Updated intraday “at or around” 2:30 EST if updated data would result in a shift in the volume weighted median by more than one basis point
- Trades between affiliated entities would be excluded
- “Open” trades would be included in the rates
The Fed specifically is seeking comment on the following 8 questions:
- Would the proposed rates be useful to market participants, researchers, or others? For what purpose(s)?
- Are one or more of the proposed rates more likely to be useful than the other(s)? For what purpose(s)?
- Are there changes to one or more of the rates that would make them more useful? For what purpose(s)?
- Are there particular sources of data or data sets that should be incorporated in the calculation of the rates that would make the rates more useful to the public?
- Are there changes that should be made to the proposed manner of calculating and publishing the three rates?
- Is the proposed time of publication early enough to facilitate the use of the rates for various purposes?
- Is the use of the volume-weighted median appropriate? Is there a different measure of the central tendency of the distribution of individual transacted rates that would be better suited? For what purpose(s)?
- Are the proposed summary statistics useful to the market? For what purposes? Would other summary statistics be more useful to accompany the daily publication, instead of or in addition to those proposed?
Comments are due 60 days after publication in the Federal Registrar.
Good Day. Good Commenting DR2