Repurchase Agreements (Repos)

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.
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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. 
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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). 
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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.
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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.”
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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.


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On May 24, 2017 the Federal Reserve Bank of New York (FRBNY) published an update on their efforts to create and publish three Treasury repo benchmarks.  The FRBNY had previously announced its efforts to create such benchmarks in November 2016 (see our prior post here).  The update announced changes to the contemplated make-up of the benchmarks.  First,  FICC-cleared bilateral Treasury repo will be included in the broadest benchmark but will be “trimmed” to limit the influence of special transactions (e.g. on demand individual Treasury CUSIP).  Second, data from Federal Reserve open market transactions will be excluded from all benchmarks.  Lastly, only tri-party data from Bank of New York Mellon will be included.
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