Repurchase Agreements (Repos)

Last month, on July 10, 2018, the Office of Financial Research (“OFR”), an agency of the U.S. Department of the Treasury, proposed a new rule that would require collection of data with respect to centrally cleared repurchase agreement transactions (“repos”) (the “Proposed Rule”).  The proposal stems from a multi-year effort by the Financial Stability Oversight Council (“FSOC”) to expand and make permanent the collection of repo data.

The Proposed Rule seeks to enhance the ability of FSOC and OFR to identify and monitor risks to financial stability, as well as support the calculation of certain reference rates for repos.  Particularly for the calculation of certain reference rates, OFR asserted that the new data from the Proposed Rule would support and enhance the calculation of both the Secured Overnight Financing Rate (“SOFR”) and the Broad General Collateral Rate (“BGCR”).
Continue Reading Treasury Department Proposes a New Rule for Data Collection of Centrally Cleared Repo Transactions

The Federal Reserve Bank of New York (FRBNY) released the monthly statistics of the U.S. tri-party repo market for October 2017.

Tri-party repo statistics are available on a consolidated basis through the FRBNY’s tri-party repo interactive tool (available here) and master excel data file (current version here and click on Downloads). 
Continue Reading Tri-Party Repo Data: October 2017

The Federal Reserve Bank of New York (FRBNY) continues to track and release monthly statistics of the U.S. tri-party repo market.  This post concerns the April 2017 through August 2017 statistics (the “Five-Month Period”).

In March 2017, the FRBNY discontinued publishing the PDF and excel files containing single month statistics to which we have ordinarily provided a hyperlink.  Instead, tri-party repo statistics will only be available on a consolidated basis through the FRBNY’s tri-party repo interactive tool (available here) and master excel data file (current version here). 
Continue Reading Tri-Party Repo Data: Summary for April 2017 to August 2017

In a remaining vestige of the financial crisis, the U.S. Bankruptcy Court for the District of Delaware (“Court”) recently issued an opinion upholding a repo counterparty’s sale of collateral following the insolvency of the counterparty to the repo. The Chapter 7 Trustee for the insolvent counterparty had challenged the sale on the basis that the sale, conducted through an auction, was not conducted in good faith or in a commercially reasonable manner and therefore violated the repurchase agreement.  At auction, an affiliated trading desk of the non-defaulting party submitted the winning bid (there were 2 bids submitted) and took possession of the securities upon payment of the auction price.  The issue was distilled and examined on the basis of the following three components:

  1. was the decision to determine the Net Asset Value of the securities held as collateral rationale or in good faith;
  2. was the auction process in accordance with industry standards;
  3. was the non-defaulting counterparty’s acceptance of the value obtained in the auction rationale or in good faith.

Continue Reading Bankruptcy Court Affirms Auction Process Used Following Repo Counterparty Insolvency

One great thing about a new Congress is that bills pending at the end of the prior Congress must be reintroduced. This wipes the slate clean of problematic proposals and reduces the risk of something slipping through without sufficient debate. For example, the proposed Bankruptcy Fairness Act of 2016 (BFA) expired with the 114th Congress. The BFA would have required the Office of Financial Research (OFR) to produce a biannual report to Congress regarding, among other things:

whether amendments to the Bankruptcy Code … and other laws relating to insolvency to modify the treatment of qualified financial contracts and master netting agreements in future situations of insolvency could reduce—

(i)         losses in the value of the financial company and its assets;

(ii)        losses to other parties in interest;

(iii)       moral hazard; and

(iv)       risks to financial stability in the United States.”

While such a report may seem innocuous, it might have provided a gateway for eliminating the safe harbors for qualified financial contracts (such as securities contracts, repurchase agreements and derivatives contracts) from the Bankruptcy Code and the Federal Deposit Insurance Act.
Continue Reading Defending Bankruptcy Exemptions for Repos and Sec Lending