Production of Rates Based on Data for Repurchase Agreements, 58397-58400 [2017-26761]
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Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Notices
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company and its subsidiaries as the
Board may require.’’ (12 U.S.C.
1467a(b)(2)). The obligation to respond
is mandatory for exempt SLHCs. In
some cases, lower-tier SLHCs may
voluntarily file the FR 2320. In other
cases lower-tier SLHCs may be required
to file (in addition to the top-tier SLHC)
for safety and soundness purposes at the
discretion of the appropriate Federal
Reserve Bank.
The Board also has determined that
data items C572, C573, and C574 (line
items 24, 25, and 26) may be protected
from disclosure under exemption 4 of
the Freedom of Information Act (FOIA).
Commercial or financial information
may be protected from disclosure under
exemption 4 if disclosure of such
information is likely to cause substantial
competitive harm to the provider of the
information. (5 U.S.C. 552(b)(4)). The
data items listed above pertain to new
or changed pledges, or capital stock of
any subsidiary savings association that
secures short-term or long-term debt or
other borrowings of the SLHC; changes
to any class of securities of the SLHC or
any of its subsidiaries that would
negatively impact investors; and
defaults of the SLHC or any of its
subsidiaries during the quarter.
Disclosure of this type of information is
likely to cause substantial competitive
harm to the SLHC providing the
information and thus this information
may be protected from disclosure under
FOIA exemption 4.
With regard to the remaining data
items on the FR 2320, the Board has
determined that institutions may
request confidential treatment for any
FR 2320 data item or for all FR 2320
data items, and that confidential
treatment will be reviewed on a case-bycase basis.
Current actions: On August 23, 2017,
the Federal Reserve published a notice
in the Federal Register (82 FR 40000)
requesting public comment for 60 days
on the extension, without revision, of
the Quarterly Savings and Loan Holding
Company Report. The comment period
for this notice expired on October 23,
2017. The Board did not receive any
comments.
Board of Governors of the Federal Reserve
System, December 7, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017–26710 Filed 12–11–17; 8:45 am]
BILLING CODE 6210–01–P
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FEDERAL RESERVE SYSTEM
transactions in which a Federal Reserve
Bank is a counterparty.2
[Docket Number OP–1573]
Rate 2: Broad General Collateral Rate
(BGCR)
The Request for Information indicated
that this rate would provide a broad
measure of rates on overnight Treasury
GC repo transactions. The rate would be
calculated based on the same
transaction-level tri-party repo data
collected from BNYM as in the TGCR
plus GCF Repo data obtained from
DTCC Solutions LLC (DTCC Solutions),
an affiliate of the Depository Trust &
Clearing Corporation (DTCC).
Production of Rates Based on Data for
Repurchase Agreements
Board of Governors of the
Federal Reserve System.
ACTION: Notice.
AGENCY:
The Board of Governors of the
Federal Reserve System (Board) is
announcing the production and
publication of three rates by the Federal
Reserve Bank of New York (FRBNY), in
coordination with the U.S. Office of
Financial Research (OFR), based on data
for overnight repurchase agreement
transactions on Treasury securities.
DATES: FRBNY intends to begin
publishing the three rates during the
second quarter of 2018.
FOR FURTHER INFORMATION CONTACT:
David Bowman, Associate Director,
(202–452–2334), Division of
International Finance; or Christopher W.
Clubb, Special Counsel (202–452–3904),
Evan Winerman, Counsel (202–872–
7578), Legal Division; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202–263–4869).
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
On August 30, 2017, the Board
published a notice and request for
public comment (Request for
Information) on the proposal that
FRBNY, in coordination with OFR,
produce and publish three rates based
on overnight repurchase agreement
(repo) transactions on U.S. Treasury
securities (Treasury repo).1 The three
rates (collectively, the ‘‘Treasury repo
rates’’) would be based on transactionlevel data from various segments of the
repo market.
A. Summary of Proposed Rates
Rate 1: Tri-Party General Collateral Rate
(TGCR)
The Request for Information indicated
that this rate would be a measure of
rates on overnight, specific-counterparty
tri-party Treasury general collateral (GC)
repo. This rate would be calculated
based on transaction-level tri-party repo
data collected from the Bank of New
York Mellon (BNYM) under the Board’s
supervisory authority. The rate would
exclude General Collateral Finance
(GCF) Repo® cleared by the Fixed
Income Clearing Corporation (FICC) and
1 82 FR 41259 (Aug. 30, 2017). The Request for
Information included a detailed overview of the
Treasury repo market.
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Rate 3: Secured Overnight Financing
Rate (SOFR)
The Request for Information indicated
that this rate would provide a broad
measure of the general cost of financing
Treasury securities overnight. The rate
would be calculated based on the triparty data from BNYM and GCF Repo
data from DTCC Solutions used to
calculate the BGCR, plus bilateral
Treasury repo transactions cleared
through FICC’s Delivery-versus-Payment
(DVP) service, filtered to remove some
(but not all) transactions considered
‘‘specials.’’ 3 This rate would not be a
pure GC repo rate, but would offer the
broadest measure of dealers’ cost of
financing Treasury securities overnight.
B. Proposed Calculation of and
Publication of the Rates
The Request for Information stated
that FRBNY would use a volumeweighted median as the central
tendency measure for each of the three
Treasury repo rates described above.
FRBNY would publish summary
statistics to accompany the daily
publication of the rate, which would
consist of the 1st, 25th, 75th and 99th
volume-weighted percentile rates, as
well as volumes.
The Request for Information included
a target publication time of 8:30 a.m. ET.
The Request for Information stated that
the rates would be revised only on a
same-day basis, and only if the revision
would result in a shift in the volumeweighted median by more than one
2 A Federal Reserve Bank may enter into bilateral
and tri-party Treasury repos in order to implement
monetary policy. Because all three proposed rates
were intended to reflect rates on trades between
market participants, it was proposed that all would
exclude Federal Reserve repos.
3 ‘‘Specials’’ are repos for specific-issue collateral,
which can take place at much lower rates than GC
trades because cash providers may be willing to
accept a lesser return on their cash, or even at times
accept a negative return, in order to secure a
particular security. The Request for Information
noted that FRBNY could filter out specials by
simply excluding the lowest quartile of bilateral
transaction volume.
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basis point. Such revisions would be
effected that same day at or around 2:30
p.m. ET and would result in a
republication of updated summary
statistics. If relevant data sources were
unavailable, the Request for Information
stated that the rates would be calculated
based upon back-up repo market survey
data collected from FRBNY’s primary
dealer counterparties. In such
circumstances, the Request for
Information indicated that FRBNY
might revise the summary statistics or
publish additional summary statistics
on a lagged basis.
For each rate, the Request for
Information stated that FRBNY would
exclude trades between affiliated
entities when relevant and when the
data to make such exclusions is
available. To the extent possible,
‘‘open’’ trades for which pricing resets
daily (making such transactions
economically similar to overnight
transactions) would be included in the
calculation of the rates.
Finally, the Request for Information
stated that each of the rates could be
modified in the future in response to
market evolution or to incorporate
additional market segments if data
become available.
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II. Public Comments
The Board received twelve comments
on the Request for Information from
financial institutions and industry
associations. Certain commenters
focused on possible uses of the
proposed rates, including the possibility
that the proposed rates (particularly
SOFR) could serve as reference rates for
financial contracts. Other commenters
focused on the calculation, publication,
and governance of the proposed rates.
A. Uses of the Proposed Rates
Commenters suggested that the
proposed rates would be useful because
they would provide a comprehensive
view of pricing in the Treasury repo
market, would provide a good proxy for
a risk-free rate, would provide useful
information regarding overnight
demand and supply for funding, and
could facilitate the creation of futures
contracts that would allow market
participants to hedge Treasury repos
and spot-market Treasury purchases.
Most commenters who expressed a view
on the potential uses of the proposed
rates suggested that SOFR would be
more useful than the other rates because
SOFR would provide a broader measure
of pricing in the Treasury repo market.
Other commenters raised concerns
regarding the possible use of SOFR as a
replacement for the London Interbank
Offered Rate (LIBOR) in financial
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contracts. For example, a number of
commenters believed that U.S. dollar
LIBOR should be replaced with term
reference rates or rates that reflect bank
credit risk in ways that are similar to
U.S. dollar LIBOR. Some commenters
also noted difficulties in amending
certain existing contracts (e.g.,
syndicated loan and corporate bond
contracts) to replace U.S. dollar LIBOR.
Based on public comments, the Board
believes that market participants could
use the proposed Treasury repo rates in
a variety of ways. The Board recognizes
that the proposed rates could be used as
reference rates in financial contracts,
and that the Alternative Reference Rates
Committee (ARRC) has selected SOFR
as its recommended alternative to U.S.
Dollar LIBOR.4 The Board notes,
however, that the proposal to publish
these rates was not contingent upon the
ARRC’s selection of SOFR or the
possible use of SOFR (or either of the
other proposed rates) as a reference rate
in financial contracts. As noted in the
Request for Information, the publication
of the Treasury repo rates 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. This information could be
useful to market participants in a variety
of ways. To the extent that market
participants choose to use SOFR or
another of the Treasury repo rates as a
reference rate, details regarding the
transition from U.S. Dollar LIBOR to
that rate in particular markets are
outside the scope of the Request for
Information and this final Federal
Register notice.
B. Calculation, Publication, and
Governance of the Proposed Rates
The Board received a number of
comments on the calculation,
publication, and governance of the
proposed rates. Commenters discussed
the types of data that FRBNY will
include in the rates, FRBNY’s
calculation methodology, and various
issues related to publication and
governance of the rates.
1. Data Sources
Three commenters suggested that the
Federal Reserve and OFR should
consider including additional Treasury
repo activity in the proposed rates (e.g.,
uncleared bilateral repos, FICC’s
Sponsored DVP Repo Service, and
FICC’s new CCITTM Service) and should
adopt a clear mechanism for including
4 See https://www.newyorkfed.org/medialibrary/
microsites/arrc/files/2017/ARRC-press-release-Jun22-2017.pdf.
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additional Treasury repo activity in the
future. As noted in the Request for
Information, each of the Treasury repo
rates could be modified in the future in
response to market evolution or to
incorporate additional market segments
if data become available. The Federal
Reserve and OFR will monitor trading
activity in new market segments and
will consult with the public in deciding
whether to include new data sources in
the Treasury repo rates or make other
compositional or methodological
changes to the rates. The Board also
notes that (1) FRBNY cannot currently
include data regarding uncleared
bilateral repos in the Treasury repo rates
because there is no available data source
for such information and (2) SOFR will
include data from FICC’s Sponsored
DVP Repo Service.
A commenter asked the Board to
provide more information regarding
FRBNY’s contract to acquire data from
DTCC Solutions, stating that additional
information would help market
participants evaluate potential risks
related to loss of access to data. The
Federal Reserve and OFR are confident
that the combination of the relevant
provisions of the contract with DTCC
Solutions and the data collection
authorities of the OFR and Federal
Reserve will ensure that they will be
able to continue to produce robust rates
under a variety of circumstances. In this
regard, the Board notes that OFR
informed the Financial Stability
Oversight Council on November 16,
2017, that it intends to propose an
information collection in the first half of
2018 to collect data regarding cleared
repo transactions.5
Finally, a commenter suggested that
the Board should use its supervisory
authority to ensure that BNYM conducts
its tri-party operations properly,
including appropriate business
continuity and other risk contingency
planning. BNYM is a State member bank
and is subject to comprehensive
supervision by the Federal Reserve.6 In
particular, the Federal Reserve
supervises BYNM’s tri-party
operations.7
2. Calculation Methodology
Two commenters supported the
proposal to calculate the Treasury repo
5 See https://www.financialresearch.gov/from-themanagement-team/2017/11/22/ofr-update-onbilateral-repo-collection/.
6 See, inter alia, section 9 of the Federal Reserve
Act (12 U.S.C. 321 et seq.) and the Board’s
Regulation H (12 CFR part 208).
7 The Board notes that the Federal Reserve has
taken a variety of steps in recent years that have
made tri-party repo infrastructure more resilient.
See https://www.newyorkfed.org/banking/tpr_infr_
reform.html.
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rates using a volume-weighted median
approach. One commenter suggested,
however, that a volume-weighted
average might be more appropriate
because SOFR could have a bimodal
distribution, with one peak representing
relatively low tri-party rates and a
second peak reflecting higher rates for
GCF repos and repos cleared through
FICC’s DVP service. This commenter
believed that, if SOFR has a bimodal
distribution, small changes in the
relative volumes of the two peaks could
result in significant shifts in the median
rate. FRBNY will use a volumeweighted median approach because,
compared to a volume-weighted mean
approach, it is more robust to erroneous
data and outliers and more frequently
reflects a transacted rate. Although the
aggregation of heterogeneous market
segments increases the risk of a
multimodal distribution, FRBNY’s
historical analysis indicates that use of
a volume-weighted median did not
materially increase the volatility of the
rate and that small shifts in the data did
not cause significant shifts in the
median rate. The Federal Reserve and
OFR will review the composition and
methodology of the rates over time and,
as noted above, will consult with the
public in deciding whether to make any
compositional or methodological
changes.
Multiple commenters asked the Board
to clarify how FRBNY will trim specials
from the proposed rates. One
commenter supported exclusion of all
bilateral transactions below the 25th
volume-weighted percentile rate, while
two commenters stated that they would
need more data to evaluate whether this
approach is sensible. Another
commenter suggested other possible
techniques for excluding outlier
transactions. Federal Reserve and OFR
staff considered several techniques for
trimming specials activity, including
removing all transactions collateralized
by on-the-run and first-off-the-run
securities.8 The Board confirms that
FRBNY will trim specials by excluding
from the FICC-cleared bilateral data all
transactions with rates below the 25th
volume-weighted percentile. Analysis of
8 See Kathryn Bayeux, Alyssa Cambron, Marco
Cipriani, Adam Copeland, Scott Sherman, and Brett
Solimine, ‘‘Introducing the Revised Broad
Treasuries Financing Rate,’’ Federal Reserve Bank
of New York Liberty Street Economics
(blog), June 19, 2017, https://
libertystreeteconomics.newyorkfed.org/2017/06/
introducing-the-revised-broad-treasuries-financingrate.html; Bowman, David, Joshua Louria, Matthew
McCormick, and Mary-Frances Styczynski (2017).
‘‘The Cleared Bilateral Repo Market and Proposed
Repo Benchmark Rates,’’ FEDS Notes. Washington:
Board of Governors of the Federal Reserve System,
February 27, 2017, https://doi.org/10.17016/23807172.1940.
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various volume-weighted percentile
thresholds revealed that excluding all
activity trading below the 25th
percentile rate struck an appropriate
balance between removing the largest
number of specials transactions and
maintaining robust volume to use in
calculating a rate.9 This approach
effectively removes transactions with
rates that are notably lower than other
transactions in the FICC-cleared
bilateral data set, which indicates that
the removed transactions are specials.
A commenter requested more
information about how FRBNY will
include ‘‘open’’ trades in the proposed
rates. Open transactions are transactions
with no specific maturity date for which
the interest rate is periodically reset
upon agreement by both borrower and
lender. Although there are many forms
of open transactions with different reset
periods, those with daily rate resets are
economically very similar to overnight
transactions. On January 24, 2017, the
Treasury Market Practices Group
recommended a new best practice in the
recording of daily-resetting open trades,
which is expected to make dailyresetting trades easier to differentiate
from open trades with different reset
periods.10
Two commenters noted that SOFR
tends to spike at quarter-ends and
suggested that FRBNY apply a
‘‘smoothing’’ mechanism to minimize
volatility of the proposed rates. The
Board recognizes that rates in some
segments of the Treasury repo market
currently tend to increase at quarterends, but FRBNY will not apply a
smoothing mechanism to the Treasury
repo rates because doing so would
provide an inaccurate view of that day’s
pricing in the Treasury repo market.
Finally, one commenter suggested
that, even though the proposed rates
would exclude transactions in which a
Federal Reserve Bank is a counterparty,
Federal Reserve activity in repo markets
might distort rates in Treasury repos
that do not involve a Federal Reserve
Bank. The Federal Reserve implements
monetary policy through multiple types
of financial transactions, including
repos. These open market operations
affect all money market rates. The Board
nevertheless believes that the Treasury
repo rates will provide market
participants with a transparent and
9 For a fuller explanation of this approach, see
‘‘Introducing the Revised Broad Treasuries
Financing Rate,’’ https://
libertystreeteconomics.newyorkfed.org/2017/06/
introducing-the-revised-broad-treasuries-financingrate.html.
10 See https://www.newyorkfed.org/medialibrary/
microsites/tmpg/files/best-practices-tripartyrepo170124.pdf.
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58399
comprehensive view of pricing in the
Treasury repo market.
3. Publication Issues
One commenter stated that the
proposed 8:30 a.m. ET publication time
was appropriate. Another commenter
asked the Federal Reserve to consider
carefully whether publishing the rates at
8:30 a.m. would impact efficient market
functioning. Three commenters believed
that the proposed rates should be
published earlier, explaining that 8:30
a.m. publication would be too late for
some foreign financial markets and on
certain days would coincide with some
U.S. economic data releases. FRBNY
will shift the publication time at least as
early as 8:00 a.m. ET to avoid coincident
release with key U.S. economic data.
The Board and FRBNY will consider
whether FRBNY can publish Treasury
repo rates even earlier, but operational
constraints—for example, constraints on
the ability of FRBNY’s data providers to
produce and deliver data overnight and
the time required for FRBNY to perform
data validation and quality assurance
processes—may prevent earlier
publication.
A commenter asked for an
explanation of how FRBNY would
publish the proposed rates. FRBNY will
publish the Treasury repo rates on its
public website, similar to the manner in
which FRBNY currently publishes the
effective federal funds rate (EFFR) and
the overnight bank funding rate
(OBFR).11
Four commenters supported the
proposal to publish summary statistics.
One of these commenters suggested,
however, that publishing statistics from
the 1st and 99th percentiles would not
be informative, and that FRBNY should
instead publish summary statistics for
percentiles between the 1st and 25th/
75th and 99th percentiles (e.g., the 5th
and 95th percentiles). Initially, FRBNY
will publish summary statistics as
described in the Request for
Information, and may publish
additional percentiles on a lagged basis.
After FRBNY begins publishing the
Treasury repo rates, FRBNY will
reassess whether market participants
would benefit from additional summary
statistics.
Three commenters requested that
FRBNY publish historical data for
SOFR. Commenters believed that
historical data would serve a number of
purposes—for example, commenters
suggested that historical data would
help market participants determine
11 See https://apps.newyorkfed.org/markets/
autorates/fed%20funds and https://
apps.newyorkfed.org/markets/autorates/obfr.
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margin requirements for derivatives that
reference SOFR and would help market
participants compare SOFR to existing
benchmarks. The Board recognizes that
market participants might benefit from
historical data. While longer histories of
comparable commercially produced
repo rates are publicly available, the
Board believes that a significantly
longer history of the Treasury repo rates
may not be possible due to limitations
on the availability of data. The Board
and FRBNY will work with BNYM and
DTCC to determine whether FRBNY can
publish additional historical data for the
Treasury repo rates.
Two commenters suggested that the
proposed threshold of ‘‘greater than one
basis point’’ for revising the proposed
rates was too sensitive. Another
commenter explained that its members
had not achieved consensus on the
threshold at which FRBNY should
revise errors, but the commenter
emphasized that FRBNY should
articulate a clear rationale for its
revision policy. The Board notes that,
because FRBNY will round the Treasury
repo rates to the nearest whole basis
point, the threshold is effectively two
basis points. The Board also notes that
this is the same threshold employed for
EFFR and OBFR, for which revisions are
very rare. The Federal Reserve will
periodically review the revision
threshold to ensure that revisions are
very rare and do not impose undue
operational costs on users of the
Treasury repo rates.
A commenter asked whether FRBNY
would publish the proposed rates if
relevant data sources were unavailable
and, if so, whether FRBNY would
correct such rates retroactively when
data becomes available. Another
commenter suggested that FRBNY
should provide more information
regarding the back-up repo market
survey it would conduct if standard data
sources are unavailable. As noted in the
Request for Information, in the event
that data sources are unavailable, the
Treasury repo rates would be calculated
based upon back-up repo market survey
data collected from FRBNY’s primary
dealer counterparties. FRBNY currently
collects repo data from primary dealers
each morning. Going forward, FRBNY
will also collect data each afternoon.
The afternoon survey will capture that
day’s activity by primary dealers and
will be available as a contingency data
source for the following morning’s
publication of the Treasury repo rates.
The survey will request aggregated
primary dealer activity in each of the
market segments captured in the
Treasury repo rates: Overnight tri-party
Treasury repo transactions, overnight
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Treasury repo transactions in the GCF
market, and FICC-cleared bilateral
Treasury repo transactions. For each of
these market segments, each dealer will
report its aggregate borrowing activity
(excluding, to the extent possible,
transactions between affiliated entities
and transactions in which the Federal
Reserve is a counterparty), along with
the weighted-average rate of its
borrowing. If FRBNY publishes
Treasury repo rates that use survey data
and subsequently receives updated data,
FRBNY would issue same-day revisions
at or around 2:30 p.m. ET if the use of
updated data would result in the
published rate changing by more than
one basis point.
Finally, two commenters asked that
FRBNY begin publishing the Treasury
repo rates as soon as possible. FRBNY
intends to begin publishing the Treasury
repo rates in the second quarter of 2018.
4. Governance
A commenter suggested that
governance arrangements for the
Treasury repo rates should align with
the Principles for Financial Benchmarks
published by the International
Organization of Securities Commissions
(IOSCO) in July 2013.12 FRBNY plans to
publish an IOSCO statement of
compliance covering the Treasury repo
rates in the first half of 2018.
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) generally
requires an agency to perform an initial
and a final regulatory flexibility analysis
on the impact a rule is expected to have
on small entities. The RFA imposes
these requirements in situations where
an agency is required by law to publish
a general notice of proposed rulemaking
for any proposed rule. The production
of the rates does not create any
obligations or rights for any private
parties, including any small entities,
and so the Board was not required to
publish a notice of proposed
rulemaking. Accordingly, the RFA does
not apply and an initial and final
regulatory flexibility analysis is not
required.
The Board did not receive any
comments regarding the Paperwork
Reduction Act or the RFA.
By order of the Board of Governors of the
Federal Reserve System, December 7, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017–26761 Filed 12–11–17; 8:45 am]
BILLING CODE 6210–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
III. Conclusion
[CMS–6063–N3]
After considering public comments,
the Board concludes that the public
would benefit if FRBNY publishes the
three Treasury repo rates as proposed,
with certain modifications described
above.
Medicare Program; Extension of Prior
Authorization for Repetitive Scheduled
Non-Emergent Ambulance Transports
IV. Administrative Law
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR part 1320, Appendix A.1), the
Board reviewed the Request for
Information and this final notice under
the authority delegated to the Board by
the Office of Management and Budget.
For purposes of calculating burden
under the Paperwork Reduction Act, a
‘‘collection of information’’ involves 10
or more respondents. As noted above,
the data to be used to produce the rates
will be obtained solely from (1) BNYM
with respect to tri-party GC repo data
and (2) DTCC Solutions with respect to
GCF repo data and DVP bilateral repo
data. Therefore, producing the rates will
not involve a collection of information
pursuant to the Paperwork Reduction
Act.
12 See https://www.iosco.org/library/pubdocs/pdf/
IOSCOPD415.pdf.
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Centers for Medicare &
Medicaid Services (CMS), HHS.
ACTION: Notice.
AGENCY:
This notice announces a 1year extension of the Medicare Prior
Authorization Model for Repetitive
Scheduled Non-Emergent Ambulance
Transport. The extension of this model
is applicable to the following states and
the District of Columbia: Delaware,
Maryland, New Jersey, North Carolina,
Pennsylvania, South Carolina, Virginia,
and West Virginia.
DATES: This extension began on
December 5, 2017 and ends on
December 1, 2018. However, prior
authorization is available upon
provider, supplier, or beneficiary
request for dates of service between
December 2, 2017 and December 4,
2017.
FOR FURTHER INFORMATION CONTACT:
Angela Gaston, (410) 786–7409.
Questions regarding the Medicare Prior
Authorization Model Extension for
Repetitive Scheduled Non-Emergent
SUMMARY:
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Agencies
[Federal Register Volume 82, Number 237 (Tuesday, December 12, 2017)]
[Notices]
[Pages 58397-58400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26761]
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FEDERAL RESERVE SYSTEM
[Docket Number OP-1573]
Production of Rates Based on Data for Repurchase Agreements
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is announcing the production and publication of three rates by the
Federal Reserve Bank of New York (FRBNY), in coordination with the U.S.
Office of Financial Research (OFR), based on data for overnight
repurchase agreement transactions on Treasury securities.
DATES: FRBNY intends to begin publishing the three rates during the
second quarter of 2018.
FOR FURTHER INFORMATION CONTACT: David Bowman, Associate Director,
(202-452-2334), Division of International Finance; or Christopher W.
Clubb, Special Counsel (202-452-3904), Evan Winerman, Counsel (202-872-
7578), Legal Division; for users of Telecommunications Device for the
Deaf (TDD) only, contact (202-263-4869).
SUPPLEMENTARY INFORMATION:
I. Background
On August 30, 2017, the Board published a notice and request for
public comment (Request for Information) on the proposal that FRBNY, in
coordination with OFR, produce and publish three rates based on
overnight repurchase agreement (repo) transactions on U.S. Treasury
securities (Treasury repo).\1\ The three rates (collectively, the
``Treasury repo rates'') would be based on transaction-level data from
various segments of the repo market.
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\1\ 82 FR 41259 (Aug. 30, 2017). The Request for Information
included a detailed overview of the Treasury repo market.
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A. Summary of Proposed Rates
Rate 1: Tri-Party General Collateral Rate (TGCR)
The Request for Information indicated that this rate would be a
measure of rates on overnight, specific-counterparty tri-party Treasury
general collateral (GC) repo. This rate would be calculated based on
transaction-level tri-party repo data collected from the Bank of New
York Mellon (BNYM) under the Board's supervisory authority. The rate
would exclude General Collateral Finance (GCF) Repo[supreg] cleared by
the Fixed Income Clearing Corporation (FICC) and transactions in which
a Federal Reserve Bank is a counterparty.\2\
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\2\ A Federal Reserve Bank may enter into bilateral and tri-
party Treasury repos in order to implement monetary policy. Because
all three proposed rates were intended to reflect rates on trades
between market participants, it was proposed that all would exclude
Federal Reserve repos.
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Rate 2: Broad General Collateral Rate (BGCR)
The Request for Information indicated that this rate would provide
a broad measure of rates on overnight Treasury GC repo transactions.
The rate would be calculated based on the same transaction-level tri-
party repo data collected from BNYM as in the TGCR plus GCF Repo data
obtained from DTCC Solutions LLC (DTCC Solutions), an affiliate of the
Depository Trust & Clearing Corporation (DTCC).
Rate 3: Secured Overnight Financing Rate (SOFR)
The Request for Information indicated that this rate would provide
a broad measure of the general cost of financing Treasury securities
overnight. The rate would be calculated based on the tri-party data
from BNYM and GCF Repo data from DTCC Solutions used to calculate the
BGCR, plus bilateral Treasury repo transactions cleared through FICC's
Delivery-versus-Payment (DVP) service, filtered to remove some (but not
all) transactions considered ``specials.'' \3\ This rate would not be a
pure GC repo rate, but would offer the broadest measure of dealers'
cost of financing Treasury securities overnight.
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\3\ ``Specials'' are repos for specific-issue collateral, which
can take place at much lower rates than GC trades because cash
providers may be willing to accept a lesser return on their cash, or
even at times accept a negative return, in order to secure a
particular security. The Request for Information noted that FRBNY
could filter out specials by simply excluding the lowest quartile of
bilateral transaction volume.
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B. Proposed Calculation of and Publication of the Rates
The Request for Information stated that FRBNY would use a volume-
weighted median as the central tendency measure for each of the three
Treasury repo rates described above. FRBNY would publish summary
statistics to accompany the daily publication of the rate, which would
consist of the 1st, 25th, 75th and 99th volume-weighted percentile
rates, as well as volumes.
The Request for Information included a target publication time of
8:30 a.m. ET. The Request for Information stated that the rates would
be revised only on a same-day basis, and only if the revision would
result in a shift in the volume-weighted median by more than one
[[Page 58398]]
basis point. Such revisions would be effected that same day at or
around 2:30 p.m. ET and would result in a republication of updated
summary statistics. If relevant data sources were unavailable, the
Request for Information stated that the rates would be calculated based
upon back-up repo market survey data collected from FRBNY's primary
dealer counterparties. In such circumstances, the Request for
Information indicated that FRBNY might revise the summary statistics or
publish additional summary statistics on a lagged basis.
For each rate, the Request for Information stated that FRBNY would
exclude trades between affiliated entities when relevant and when the
data to make such exclusions is available. To the extent possible,
``open'' trades for which pricing resets daily (making such
transactions economically similar to overnight transactions) would be
included in the calculation of the rates.
Finally, the Request for Information stated that each of the rates
could be modified in the future in response to market evolution or to
incorporate additional market segments if data become available.
II. Public Comments
The Board received twelve comments on the Request for Information
from financial institutions and industry associations. Certain
commenters focused on possible uses of the proposed rates, including
the possibility that the proposed rates (particularly SOFR) could serve
as reference rates for financial contracts. Other commenters focused on
the calculation, publication, and governance of the proposed rates.
A. Uses of the Proposed Rates
Commenters suggested that the proposed rates would be useful
because they would provide a comprehensive view of pricing in the
Treasury repo market, would provide a good proxy for a risk-free rate,
would provide useful information regarding overnight demand and supply
for funding, and could facilitate the creation of futures contracts
that would allow market participants to hedge Treasury repos and spot-
market Treasury purchases. Most commenters who expressed a view on the
potential uses of the proposed rates suggested that SOFR would be more
useful than the other rates because SOFR would provide a broader
measure of pricing in the Treasury repo market.
Other commenters raised concerns regarding the possible use of SOFR
as a replacement for the London Interbank Offered Rate (LIBOR) in
financial contracts. For example, a number of commenters believed that
U.S. dollar LIBOR should be replaced with term reference rates or rates
that reflect bank credit risk in ways that are similar to U.S. dollar
LIBOR. Some commenters also noted difficulties in amending certain
existing contracts (e.g., syndicated loan and corporate bond contracts)
to replace U.S. dollar LIBOR.
Based on public comments, the Board believes that market
participants could use the proposed Treasury repo rates in a variety of
ways. The Board recognizes that the proposed rates could be used as
reference rates in financial contracts, and that the Alternative
Reference Rates Committee (ARRC) has selected SOFR as its recommended
alternative to U.S. Dollar LIBOR.\4\ The Board notes, however, that the
proposal to publish these rates was not contingent upon the ARRC's
selection of SOFR or the possible use of SOFR (or either of the other
proposed rates) as a reference rate in financial contracts. As noted in
the Request for Information, the publication of the Treasury repo rates
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. This information could be useful to
market participants in a variety of ways. To the extent that market
participants choose to use SOFR or another of the Treasury repo rates
as a reference rate, details regarding the transition from U.S. Dollar
LIBOR to that rate in particular markets are outside the scope of the
Request for Information and this final Federal Register notice.
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\4\ See https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf.
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B. Calculation, Publication, and Governance of the Proposed Rates
The Board received a number of comments on the calculation,
publication, and governance of the proposed rates. Commenters discussed
the types of data that FRBNY will include in the rates, FRBNY's
calculation methodology, and various issues related to publication and
governance of the rates.
1. Data Sources
Three commenters suggested that the Federal Reserve and OFR should
consider including additional Treasury repo activity in the proposed
rates (e.g., uncleared bilateral repos, FICC's Sponsored DVP Repo
Service, and FICC's new CCITTM Service) and should adopt a
clear mechanism for including additional Treasury repo activity in the
future. As noted in the Request for Information, each of the Treasury
repo rates could be modified in the future in response to market
evolution or to incorporate additional market segments if data become
available. The Federal Reserve and OFR will monitor trading activity in
new market segments and will consult with the public in deciding
whether to include new data sources in the Treasury repo rates or make
other compositional or methodological changes to the rates. The Board
also notes that (1) FRBNY cannot currently include data regarding
uncleared bilateral repos in the Treasury repo rates because there is
no available data source for such information and (2) SOFR will include
data from FICC's Sponsored DVP Repo Service.
A commenter asked the Board to provide more information regarding
FRBNY's contract to acquire data from DTCC Solutions, stating that
additional information would help market participants evaluate
potential risks related to loss of access to data. The Federal Reserve
and OFR are confident that the combination of the relevant provisions
of the contract with DTCC Solutions and the data collection authorities
of the OFR and Federal Reserve will ensure that they will be able to
continue to produce robust rates under a variety of circumstances. In
this regard, the Board notes that OFR informed the Financial Stability
Oversight Council on November 16, 2017, that it intends to propose an
information collection in the first half of 2018 to collect data
regarding cleared repo transactions.\5\
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\5\ See https://www.financialresearch.gov/from-the-management-team/2017/11/22/ofr-update-on-bilateral-repo-collection/.
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Finally, a commenter suggested that the Board should use its
supervisory authority to ensure that BNYM conducts its tri-party
operations properly, including appropriate business continuity and
other risk contingency planning. BNYM is a State member bank and is
subject to comprehensive supervision by the Federal Reserve.\6\ In
particular, the Federal Reserve supervises BYNM's tri-party
operations.\7\
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\6\ See, inter alia, section 9 of the Federal Reserve Act (12
U.S.C. 321 et seq.) and the Board's Regulation H (12 CFR part 208).
\7\ The Board notes that the Federal Reserve has taken a variety
of steps in recent years that have made tri-party repo
infrastructure more resilient. See https://www.newyorkfed.org/banking/tpr_infr_reform.html.
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2. Calculation Methodology
Two commenters supported the proposal to calculate the Treasury
repo
[[Page 58399]]
rates using a volume-weighted median approach. One commenter suggested,
however, that a volume-weighted average might be more appropriate
because SOFR could have a bimodal distribution, with one peak
representing relatively low tri-party rates and a second peak
reflecting higher rates for GCF repos and repos cleared through FICC's
DVP service. This commenter believed that, if SOFR has a bimodal
distribution, small changes in the relative volumes of the two peaks
could result in significant shifts in the median rate. FRBNY will use a
volume-weighted median approach because, compared to a volume-weighted
mean approach, it is more robust to erroneous data and outliers and
more frequently reflects a transacted rate. Although the aggregation of
heterogeneous market segments increases the risk of a multimodal
distribution, FRBNY's historical analysis indicates that use of a
volume-weighted median did not materially increase the volatility of
the rate and that small shifts in the data did not cause significant
shifts in the median rate. The Federal Reserve and OFR will review the
composition and methodology of the rates over time and, as noted above,
will consult with the public in deciding whether to make any
compositional or methodological changes.
Multiple commenters asked the Board to clarify how FRBNY will trim
specials from the proposed rates. One commenter supported exclusion of
all bilateral transactions below the 25th volume-weighted percentile
rate, while two commenters stated that they would need more data to
evaluate whether this approach is sensible. Another commenter suggested
other possible techniques for excluding outlier transactions. Federal
Reserve and OFR staff considered several techniques for trimming
specials activity, including removing all transactions collateralized
by on-the-run and first-off-the-run securities.\8\ The Board confirms
that FRBNY will trim specials by excluding from the FICC-cleared
bilateral data all transactions with rates below the 25th volume-
weighted percentile. Analysis of various volume-weighted percentile
thresholds revealed that excluding all activity trading below the 25th
percentile rate struck an appropriate balance between removing the
largest number of specials transactions and maintaining robust volume
to use in calculating a rate.\9\ This approach effectively removes
transactions with rates that are notably lower than other transactions
in the FICC-cleared bilateral data set, which indicates that the
removed transactions are specials.
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\8\ See Kathryn Bayeux, Alyssa Cambron, Marco Cipriani, Adam
Copeland, Scott Sherman, and Brett Solimine, ``Introducing the
Revised Broad Treasuries Financing Rate,'' Federal Reserve Bank of
New York Liberty Street Economics (blog), June 19, 2017, https://libertystreeteconomics.newyorkfed.org/2017/06/introducing-the-revised-broad-treasuries-financing-rate.html; Bowman, David, Joshua
Louria, Matthew McCormick, and Mary-Frances Styczynski (2017). ``The
Cleared Bilateral Repo Market and Proposed Repo Benchmark Rates,''
FEDS Notes. Washington: Board of Governors of the Federal Reserve
System, February 27, 2017, https://doi.org/10.17016/2380-7172.1940.
\9\ For a fuller explanation of this approach, see ``Introducing
the Revised Broad Treasuries Financing Rate,'' https://libertystreeteconomics.newyorkfed.org/2017/06/introducing-the-revised-broad-treasuries-financing-rate.html.
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A commenter requested more information about how FRBNY will include
``open'' trades in the proposed rates. Open transactions are
transactions with no specific maturity date for which the interest rate
is periodically reset upon agreement by both borrower and lender.
Although there are many forms of open transactions with different reset
periods, those with daily rate resets are economically very similar to
overnight transactions. On January 24, 2017, the Treasury Market
Practices Group recommended a new best practice in the recording of
daily-resetting open trades, which is expected to make daily-resetting
trades easier to differentiate from open trades with different reset
periods.\10\
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\10\ See https://www.newyorkfed.org/medialibrary/microsites/tmpg/files/best-practices-tripartyrepo-170124.pdf.
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Two commenters noted that SOFR tends to spike at quarter-ends and
suggested that FRBNY apply a ``smoothing'' mechanism to minimize
volatility of the proposed rates. The Board recognizes that rates in
some segments of the Treasury repo market currently tend to increase at
quarter-ends, but FRBNY will not apply a smoothing mechanism to the
Treasury repo rates because doing so would provide an inaccurate view
of that day's pricing in the Treasury repo market.
Finally, one commenter suggested that, even though the proposed
rates would exclude transactions in which a Federal Reserve Bank is a
counterparty, Federal Reserve activity in repo markets might distort
rates in Treasury repos that do not involve a Federal Reserve Bank. The
Federal Reserve implements monetary policy through multiple types of
financial transactions, including repos. These open market operations
affect all money market rates. The Board nevertheless believes that the
Treasury repo rates will provide market participants with a transparent
and comprehensive view of pricing in the Treasury repo market.
3. Publication Issues
One commenter stated that the proposed 8:30 a.m. ET publication
time was appropriate. Another commenter asked the Federal Reserve to
consider carefully whether publishing the rates at 8:30 a.m. would
impact efficient market functioning. Three commenters believed that the
proposed rates should be published earlier, explaining that 8:30 a.m.
publication would be too late for some foreign financial markets and on
certain days would coincide with some U.S. economic data releases.
FRBNY will shift the publication time at least as early as 8:00 a.m. ET
to avoid coincident release with key U.S. economic data. The Board and
FRBNY will consider whether FRBNY can publish Treasury repo rates even
earlier, but operational constraints--for example, constraints on the
ability of FRBNY's data providers to produce and deliver data overnight
and the time required for FRBNY to perform data validation and quality
assurance processes--may prevent earlier publication.
A commenter asked for an explanation of how FRBNY would publish the
proposed rates. FRBNY will publish the Treasury repo rates on its
public website, similar to the manner in which FRBNY currently
publishes the effective federal funds rate (EFFR) and the overnight
bank funding rate (OBFR).\11\
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\11\ See https://apps.newyorkfed.org/markets/autorates/fed%20funds and https://apps.newyorkfed.org/markets/autorates/obfr.
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Four commenters supported the proposal to publish summary
statistics. One of these commenters suggested, however, that publishing
statistics from the 1st and 99th percentiles would not be informative,
and that FRBNY should instead publish summary statistics for
percentiles between the 1st and 25th/75th and 99th percentiles (e.g.,
the 5th and 95th percentiles). Initially, FRBNY will publish summary
statistics as described in the Request for Information, and may publish
additional percentiles on a lagged basis. After FRBNY begins publishing
the Treasury repo rates, FRBNY will reassess whether market
participants would benefit from additional summary statistics.
Three commenters requested that FRBNY publish historical data for
SOFR. Commenters believed that historical data would serve a number of
purposes--for example, commenters suggested that historical data would
help market participants determine
[[Page 58400]]
margin requirements for derivatives that reference SOFR and would help
market participants compare SOFR to existing benchmarks. The Board
recognizes that market participants might benefit from historical data.
While longer histories of comparable commercially produced repo rates
are publicly available, the Board believes that a significantly longer
history of the Treasury repo rates may not be possible due to
limitations on the availability of data. The Board and FRBNY will work
with BNYM and DTCC to determine whether FRBNY can publish additional
historical data for the Treasury repo rates.
Two commenters suggested that the proposed threshold of ``greater
than one basis point'' for revising the proposed rates was too
sensitive. Another commenter explained that its members had not
achieved consensus on the threshold at which FRBNY should revise
errors, but the commenter emphasized that FRBNY should articulate a
clear rationale for its revision policy. The Board notes that, because
FRBNY will round the Treasury repo rates to the nearest whole basis
point, the threshold is effectively two basis points. The Board also
notes that this is the same threshold employed for EFFR and OBFR, for
which revisions are very rare. The Federal Reserve will periodically
review the revision threshold to ensure that revisions are very rare
and do not impose undue operational costs on users of the Treasury repo
rates.
A commenter asked whether FRBNY would publish the proposed rates if
relevant data sources were unavailable and, if so, whether FRBNY would
correct such rates retroactively when data becomes available. Another
commenter suggested that FRBNY should provide more information
regarding the back-up repo market survey it would conduct if standard
data sources are unavailable. As noted in the Request for Information,
in the event that data sources are unavailable, the Treasury repo rates
would be calculated based upon back-up repo market survey data
collected from FRBNY's primary dealer counterparties. FRBNY currently
collects repo data from primary dealers each morning. Going forward,
FRBNY will also collect data each afternoon. The afternoon survey will
capture that day's activity by primary dealers and will be available as
a contingency data source for the following morning's publication of
the Treasury repo rates. The survey will request aggregated primary
dealer activity in each of the market segments captured in the Treasury
repo rates: Overnight tri-party Treasury repo transactions, overnight
Treasury repo transactions in the GCF market, and FICC-cleared
bilateral Treasury repo transactions. For each of these market
segments, each dealer will report its aggregate borrowing activity
(excluding, to the extent possible, transactions between affiliated
entities and transactions in which the Federal Reserve is a
counterparty), along with the weighted-average rate of its borrowing.
If FRBNY publishes Treasury repo rates that use survey data and
subsequently receives updated data, FRBNY would issue same-day
revisions at or around 2:30 p.m. ET if the use of updated data would
result in the published rate changing by more than one basis point.
Finally, two commenters asked that FRBNY begin publishing the
Treasury repo rates as soon as possible. FRBNY intends to begin
publishing the Treasury repo rates in the second quarter of 2018.
4. Governance
A commenter suggested that governance arrangements for the Treasury
repo rates should align with the Principles for Financial Benchmarks
published by the International Organization of Securities Commissions
(IOSCO) in July 2013.\12\ FRBNY plans to publish an IOSCO statement of
compliance covering the Treasury repo rates in the first half of 2018.
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\12\ See https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf.
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III. Conclusion
After considering public comments, the Board concludes that the
public would benefit if FRBNY publishes the three Treasury repo rates
as proposed, with certain modifications described above.
IV. Administrative Law
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR part 1320, Appendix A.1), the Board reviewed the Request
for Information and this final notice under the authority delegated to
the Board by the Office of Management and Budget. For purposes of
calculating burden under the Paperwork Reduction Act, a ``collection of
information'' involves 10 or more respondents. As noted above, the data
to be used to produce the rates will be obtained solely from (1) BNYM
with respect to tri-party GC repo data and (2) DTCC Solutions with
respect to GCF repo data and DVP bilateral repo data. Therefore,
producing the rates will not involve a collection of information
pursuant to the Paperwork Reduction Act.
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires an agency to perform an initial and a final
regulatory flexibility analysis on the impact a rule is expected to
have on small entities. The RFA imposes these requirements in
situations where an agency is required by law to publish a general
notice of proposed rulemaking for any proposed rule. The production of
the rates does not create any obligations or rights for any private
parties, including any small entities, and so the Board was not
required to publish a notice of proposed rulemaking. Accordingly, the
RFA does not apply and an initial and final regulatory flexibility
analysis is not required.
The Board did not receive any comments regarding the Paperwork
Reduction Act or the RFA.
By order of the Board of Governors of the Federal Reserve
System, December 7, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017-26761 Filed 12-11-17; 8:45 am]
BILLING CODE 6210-01-P