Repurchase Agreements (Repos)

On November 29, 2018, in remarks before the 2018 Financial Stability Conference in Washington, D.C., Chairman J. Christopher Giancarlo of the U.S. Commodity Futures Trading Commission (“CFTC”) supported the adoption of the Secured Overnight Financing Rate (“SOFR”) as the new benchmark for short-term unsecured interest rates.  SOFR is currently produced by the Federal Reserve Bank of New York (“New York Fed”) and is based on transactions in the repurchase agreement transaction (“repo”) markets.  Chairman Giancarlo’s statements and support of SOFR come on the heels of a series of market and regulatory developments relating to benchmark reform.

Since 2017, regulators and financial market industry leaders have been working to design alternative interest rate benchmarks.  Significantly, in June 2017, the Alternative Reference Rates Committee (“ARRC”), an organization convened by the Federal Reserve Board (“FRB”) and the New York Fed, selected a broad repo rate as its preferred alternative reference rate.  In choosing a broad repo rate, ARRC considered factors including the depth of the underlying market and its likely robustness over time; the rate’s usefulness to market participants; and whether the rate’s construction, governance, and accountability would be consistent with the IOSCO Principles for Financial Benchmarks.
Continue Reading CFTC Chairman and Market Participants Weigh in on the Transition to SOFR

On November 6, 2018, the U.S. Securities and Exchange Commission (“SEC”) brought an enforcement action against a (formerly) registered investment adviser (“Adviser”), for failing to meet its diligence and compliance responsibilities under the Investment Advisers Act (“IAA”) relating to certain repurchase agreement (“repos”) facilities it offered to

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

On April 3, 2018 the Federal Reserve Bank of New York (“Fed”) started publishing its three repo rates: the Secured Overnight Financing Rate (SOFR), the Broad General Collateral Rate (BGCR) and the Tri-Party General Collateral Rate (TGCR). For an overview of differences between the composition of each of the rates please refer to our prior post.

Previously, in March, the Fed released “a time series of the volume-weighted mean rate of the primary dealer’s overnight Treasury general collateral repo activity. . .” which it calculated from its surveys of the primary dealers. The Fed also released indicative historical rates for the SOFR rate going back to August 2014. It also indicated it was going to investigate providing a longer historical period for the SOFR rate. The historical data appears to be a response to comments received during the request for comment phase where three commenters requested historical data for SOFR in order to assist market participants in structuring margin requirements on derivative instruments that reference SOFR and assist in comparisons to other benchmarks.
Continue Reading The Fed’s Repo Rates Are Here

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 Board of Governors of the Federal Reserve System (Fed Reserve) recently issued a final rule entitled “Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and U.S. Operations of Systemically Important Foreign Banking Organizations; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions” (hereafter the “Final Rule” and available here.  The Final Rule would impose restrictions on contractual certain default  (and cross default) rights contained in certain repo, derivative and securities lending agreements. 
Continue Reading Buy Side Overview of Fed Reserve Rule Restricting Certain Contractual Default Rights Under Repo, Securities Lending and Derivative Contracts

The Federal Reserve Bank of New York (FRBNY) released the monthly statistics of the U.S. tri-party repo market for September 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). 
Continue Reading Tri-Party Repo Data: September 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

Recently the Liberty Street Economics blog on the Federal Reserve Bank of New York’s website published a post entitled: “Regulatory Incentives and Quarter-End Dynamics in the Repo Market.”  The post explores the quarter-end repo dynamics of the U.S. repo market for U.S. Treasury securities and primarily focuses on the impact that the leverage ratio has on quarter end dynamics.

Their evaluation of the U.S. tri-party repo market shows that European banks reduce their repo demand at quarter-end while little change is seen from banks in other jurisdictions, including Japan and the United States.   The post also shows that repo rates generally remain stable at quarter-end which they attribute to the Fed’s overnight reverse repo program soothing out the disruption in supply caused by the European banks by accepting cash that lenders cannot otherwise invest.
Continue Reading A Look At the Quarter-End Repo Market

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.”
Continue Reading Fed Reserve Requests Comments on Proposed Repo Rates