Ongoing Data Collection of Centrally Cleared Transactions in the U.S. Repurchase Agreement Market, 31896-31911 [2018-14706]
Download as PDF
<![CDATA[
31896
Proposed Rules
Federal Register
Vol. 83, No. 132
Tuesday, July 10, 2018
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF THE TREASURY
Office of Financial Research
12 CFR Part 1610
RIN 1505–AC58
Ongoing Data Collection of Centrally
Cleared Transactions in the U.S.
Repurchase Agreement Market
Office of Financial Research,
Treasury.
ACTION: Proposed rule.
AGENCY:
The U.S. Department of the
Treasury’s Office of Financial Research
(the ‘‘Office’’) is requesting comment on
a proposed rule establishing a data
collection covering centrally cleared
transactions in the U.S. repurchase
agreement market. This proposed
collection will require daily reporting to
the Office by covered central
counterparties. The Office expects that
the Board of Governors of the Federal
Reserve System will act as the Office’s
collection agent, with required data to
be submitted directly to the Federal
Reserve Bank of New York. The
collected data will be used to support
the Financial Stability Oversight
Council and as inputs to reference rates.
DATES: Comments must be received by
September 10, 2018.
ADDRESSES: You may submit comments,
identified by [RIN 1505–AC58], by any
of the following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Matthew Reed, Chief Counsel,
or Patrick Bittner, Senior Counsel,
Office of the Chief Counsel, Office of
Financial Research, 717 14th Street NW,
Washington, DC 20220.
Instructions: All submissions received
must include the agency name and RIN
1505–AC58 for this rulemaking. Because
paper mail in the Washington, DC, area
may be subject to delay, it is
recommended that comments be
submitted electronically. In general, all
comments received will be posted
amozie on DSK3GDR082PROD with PROPOSALS1
SUMMARY:
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
without change to https://
www.regulations.gov, including any
personal information provided.
For access to the docket to read
background documents or comments
received, go to https://
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Patrick Bittner, Senior Counsel, (202)
927–0035, patrick.bittner@
ofr.treasury.gov; Matthew McCormick,
Research Economist, (202) 927–8215,
matthew.mccormick@ofr.treasury.gov.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
II. Repurchase Agreement Market
Background
a. Importance of Repurchase Agreement
Markets and Associated Vulnerabilities
i. Low-Risk Option for Cash Investment/
Deposit Substitute
ii. Monetizing Liquid Assets
iii. Transformation of Collateral
iv. Facilitating Hedging
v. Supporting Secondary Market Efficiency
and Liquidity
b. Structure of the U.S. Repurchase
Agreement Market
c. Data Available on U.S. Repurchase
Agreement Activity
i. Tri-Party Repurchase Agreements
ii. Centrally Cleared General Collateral
Repurchase Agreements
iii. Centrally Cleared Specific-Security
Repurchase Agreements
iv. Uncleared Bilateral Repurchase
Agreements
III. Alternative Reference Rate Background
IV. Justification for Proposed Collection
a. Collection of Centrally Cleared
Repurchase Agreement Data
i. Importance of Centrally Cleared
Repurchase Agreement Data for
Monitoring Financial Stability Risks
ii. Importance of Centrally Cleared
Repurchase Agreement Data to
Alternative Reference Rates
b. Uses of the Data Collection
c. Legal Authority
V. Collection Design
a. Scope of Application
b. Information Required
i. Legal Entity Identifier Usage
ii. Transaction Information
iii. Date and Tenor Information
iv. Trade Size and Rate
v. Price of Collateral/Security
c. Submission Process and Implementation
VI. Administrative Law Matters
a. Paperwork Reduction Act
b. Regulatory Flexibility Act
c. Plain Language
I. Executive Summary
The Office of Financial Research
(‘‘Office’’) is requesting comment on a
PO 00000
Frm 00001
Fmt 4702
Sfmt 4702
proposed rule establishing a data
collection covering centrally cleared
transactions in the U.S. repurchase
agreement market (‘‘proposed
collection’’). This proposed collection
will require reporting by certain U.S.
central counterparties (‘‘CCPs’’) for
repurchase agreement (‘‘repo’’)
transactions. This proposed collection
will serve two primary purposes: (1)
Enhance the ability of the Financial
Stability Oversight Council (‘‘Council’’)
and the Office to identify and monitor
risks to financial stability; and (2)
support the calculation of certain
reference rates. Under the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (‘‘Dodd-Frank Act’’), the
Office is authorized to issue rules and
regulations in order to collect and
standardize data to support the Council
in fulfilling its duties and purposes,
such as identifying risks to U.S.
financial stability. The Council
recommended a permanent collection of
repo data in its 2016 annual report to
Congress and, as required by law, the
Office consulted with the Council on
the schedule of collection in September
2016.1 The Council maintained this
recommendation in its 2017 annual
report. This proposed collection will
require reporting on centrally cleared
repo transactions, which comprise
approximately one-quarter of all repo
market transactions, marking an
important step toward fully addressing
the Council recommendation.
The expanded monitoring of the repo
market made possible by this proposed
collection appropriately helps fulfill the
Council’s duties and purposes because
of this market’s crucial role in providing
short-term funding and performing
other functions for U.S. markets, making
it important for financial stability
monitoring. The data will also support
the calculation of the Secured Overnight
Funding Rate (‘‘SOFR’’), which was
selected by the Alternative Reference
Rates Committee (‘‘ARRC’’) as its
preferred alternative rate to U.S. dollar
London Interbank Offered Rate
(‘‘LIBOR’’), as well as the Broad General
Collateral Rate (‘‘BGCR’’), helping fulfill
1 See Minutes of the Financial Stability Oversight
Council (September 22, 2016), https://
www.treasury.gov/initiatives/fsoc/council-meetings/
Documents/September222016_minutes.pdf and 12
U.S.C. § 5344(b)(1)(B)(iii).
E:\FR\FM\10JYP1.SGM
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
another Council recommendation on the
creation of alternative reference rates.2
II. Repurchase Agreement Market
Background
amozie on DSK3GDR082PROD with PROPOSALS1
A repo transaction is the sale of
assets, combined with an agreement to
repurchase the assets on a specified
future date at a prearranged price. Repos
are commonly used as a form of secured
borrowing. The assets underlying the
repo are used as collateral to protect the
cash provider against the risk that the
securities provider fails to repurchase
the assets underlying the repurchase
agreement. Market participants use
repos for many reasons, such as using
cash as collateral to borrow securities
and to finance securities holdings.
Central banks also use repos as an
important monetary policy tool.3 The
interest rate on repo borrowing is
calculated from the difference between
the sale price and the repurchase price
of the assets underlying the repo.
To protect the cash provider against a
decline in the value of the securities
subject to repurchase, cash providers
typically require over-collateralization
from borrowers. In an uncleared
bilateral repo, the value of the securities
pledged as collateral is discounted,
which is referred to as a haircut. In a
centrally cleared repo,
overcollateralization is accomplished
via initial margin. If the market value of
the collateral falls during the life of the
repo, the cash provider or, if cleared, the
clearing firm, has the right to call on its
counterparty to deliver additional
collateral, known as variation margin, so
that the loan remains over-collateralized
against future adverse price movements.
Repo transaction documentation
specifies the terms, including the types
of securities that are acceptable to the
cash provider as collateral, and the
associated haircuts or initial margin
requirements. Repos can be entered into
with a range of fixed maturities, though
repos are often overnight transactions.
For term repos, repo rates can be
negotiated on either a fixed or on a
floating basis. There are also open tenor
repos that do not have a fixed maturity
and are instead renewed by mutual
agreement.
2 See Financial Stability Oversight Council, 2014
Annual Report, p. 10; 2015 Annual Report, p. 17;
2016 Annual Report, pp. 14–15; and 2017 Annual
Report, pp. 12–13, https://www.treasury.gov/
initiatives/fsoc/studies-reports/Pages/2017-AnnualReport.aspx.
3 See Lorie K. Logan, Federal Reserve Bank of
New York, ‘‘Operational Perspectives on Monetary
Policy Implementation: Panel Remarks on ‘The
Future of the Central Bank Balance Sheet’ ’’ (2018),
https://www.newyorkfed.org/newsevents/speeches/
2018/log180504.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
a. Importance of Repurchase Agreement
Markets and Associated Vulnerabilities
A stable and well-functioning repo
market is critical to U.S. financial
markets and the U.S. economy, and thus
U.S. financial stability. The repo market
is the largest short-term wholesale
funding market in the United States. In
2008–09, runs on repos contributed to
the financial crisis and helped lead to
official sector intervention.4 The repo
market is important to facilitating the
flow of cash and securities through the
financial system. There are four
functions that repo transactions can
serve for individual participants: Lowrisk cash investment, monetization of
assets, transformation of collateral, and
facilitation of hedging.5 Repos also
benefit financial markets broadly by
supporting secondary market efficiency
and liquidity.6 These functions are
described in the following paragraphs to
provide a framework for understanding
activity in the repo market and the
associated vulnerabilities, and the need
for the information this proposed
collection will provide. Understanding
the benefits and vulnerabilities of the
repo market as a whole is important
both in demonstrating the need for this
proposed collection and determining
which data elements are appropriate for
inclusion.
i. Low-Risk Option for Cash Investment;
Deposit Substitute
One of the functions repos offer is an
alternative to insured deposits that
provides similar, though less, liquidity
and security. Financial market
participants desire low-risk, money-like
claims in order to meet demand for
access to cash. Money and money-like
claims can take a number of forms,
including deposits and money market
mutual fund investments. Because
deposit insurance is capped in the
United States, institutions seek repos
backed by high-quality assets to place
excess cash over the deposit insurance
limit. The securities provided in the
trade protect the cash provider against
counterparty credit risk, while use of
overcollateralization provides
protection against market risk.7 In
4 See Gary Gorton and Andrew Metrick,
‘‘Securitized Banking and the Run on Repo,’’
Journal of Financial Economics (June 2012), pp, p.
425–451.
5 See Bank for International Settlements, study
group report, Repo Market Functioning (April
2017), https://www.bis.org/publ/cgfs59.htm.
6 See Bank for International Settlements (April
2017).
7 Repos are generally subject to an exemption
from the automatic stay in bankruptcy, meaning
that if a cash provider’s counterparty were to
default, the cash provider could liquidate the
collateral, recovering its value. 11 U.S.C. 559. In
PO 00000
Frm 00002
Fmt 4702
Sfmt 4702
31897
general, higher-quality collateral and
larger haircuts reduce the risk to the
cash provider.
Repo markets can become less
effective in providing deposit
substitutes in times of market stress.8 In
certain circumstances, although repo
claims are secured, they may still lose
favor as collateral values drop or
counterparty risk increases. This risk
was realized for Bear Stearns in 2008,
when a run on Bear Stearns’ funding
spread to its repo borrowing against
high-quality collateral.9 This example
demonstrates that even repos backed by
high-quality collateral can become
sensitive to counterparty risk,
potentially resulting in a run on the
institution’s funding.
ii. Monetizing Liquid Assets
Just as repos offer cash providers a
deposit substitute, they allow cash
borrowers to obtain funding in a costefficient manner. The monetization of
assets achieved via repos offers a source
of liquidity to firms that hold securities
in inventory. For this reason, repos play
an important role in the government
securities market, as dealers often use
repos to fund their purchases of
Treasury securities at auction.
The ability to monetize assets enables
firms to engage in maturity
transformation, in which a firm funds
long-term assets using short-term
liabilities. For example, a firm can
borrow cash in the repo market with
overnight maturity, using the cash
2017, the Board of Governors of the Federal Reserve
System and Federal Deposit Insurance Corporation
adopted a final rule requiring U.S. global
systemically important banks (G–SIBs) and their
subsidiaries to amend their repo contracts to
temporarily stay the exercise of default rights
caused by the bankruptcy of an affiliate. See 82 FR
42882 (September 12, 2017).
8 For example, greater demand for high-quality
assets makes them more difficult to procure, which
can lead to failures to return the repo collateral.
This phenomenon can become self-perpetuating, as
when failures rise, market participants become less
likely to lend securities to avoid the possibility that
they may not get them back. This further reduces
the supply of securities, exacerbating the situation.
As a result, an initial shock to asset markets that
reduces the supply of acceptable alternatives to
cash providers can be amplified through repo
market dynamics, further reducing firms’ options
for deposit substitutes due to rising transaction
fails.
9 The maturity of Bear Stearns’ repo funding
deteriorated over several months before the firm
experienced a run that first occurred on its bilateral
repos secured by lower-quality assets, and then
spread to its repos backed by U.S. Treasury
securities. A similar dynamic occurred at a major
European bank during the crisis, where the
institution’s bilateral repos backed by government
securities dried up and only repos that were
centrally cleared remained available to the firm. See
Bank for International Settlements, Liqudity Stress
Testing: A Survey of Theory, Empirics and Current
Industry and Supervisory Practices (October 2013),
https://www.bis.org/publ/bcbs_wp24.htm.
E:\FR\FM\10JYP1.SGM
10JYP1
31898
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
received to fund its holdings of longterm assets, which it provides as
collateral. While maturity
transformation is an essential function
of the financial system, the assetliability maturity mismatch gives rise to
rollover risk.
As a result of the maturity mismatch
that can arise from the monetization of
liquid assets, this function, while a
benefit of repos, is also a potential
source of fragility. When the repo
market is impaired, the ability of
securities providers to borrow against
their portfolios can be reduced.10 An
example of this dynamic occurred in
2007, when haircuts on repos backed by
private-label mortgage-backed securities
(‘‘MBS’’) began to rise as a result of
doubts about the value of the underlying
collateral. As haircuts rose, leveraged
firms were forced to sell difficult-tovalue assets, often to buyers that were
even less able to value the assets. Those
buyers required steeper discounts as a
result, creating strong fire sale dynamics
that further undermined the value of
private-label MBS.11 These runs passed
through from dealers to leveraged funds,
increasing the likelihood that those
funds would be forced to dispose of
assets in a fire sale, further reinforcing
the fire sale dynamics.12
iii. Transformation of Collateral
amozie on DSK3GDR082PROD with PROPOSALS1
Another function of repos is to
exchange securities currently held for
other securities. This type of transaction
allows firms to exchange one asset for
another asset, effecting a form of
collateral transformation. For example, a
firm may want to temporarily exchange
lower-quality equity collateral for
higher-quality Treasury securities that
can be posted as margin. This goal can
be accomplished through a pair of repo
transactions in which the firm lends the
10 This can occur when some securities become
information-sensitive. Because cash providers seek
to avoid gathering costly information about the
quality of individual securities, increases in
uncertainty as to the value of securities cause them
to increase asset class-level haircuts in an attempt
to recover their information-insensitivity. This
reduces the ability of securities providers to borrow
in repo against their portfolios. See Gary Gorton and
˜
Guillermo Ordonez, ‘‘Collateral Crises,’’ American
Economic Review, Vol. 104, no. 2 (February 2014),
https://www.aeaweb.org/articles?id=10.1257/
aer.104.2.343.
11 See Gary B. Gorton, ‘‘Information, Liquidity,
and the (Ongoing) Panic of 2007,’’ NBER Working
Paper no. 14649 (January 2009), https://
www.nber.org/papers/w14649.
12 See Rajkamal Iyer and Marco Macchiavelli,
‘‘Primary Dealers’ Behavior During the 2007–08
Crisis: Part II, Intermediation and Deleveraging,’’
FEDS Notes (June 28, 2017), https://
www.federalreserve.gov/econres/notes/feds-notes/
primary-dealers-behavior-during-the-2007-08-crisispart-II-intermediation-and-deleveraging20170628.htm.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
equities in one repo transaction and
uses the cash proceeds to borrow
Treasury securities in a second repo
transaction, effectively transforming the
quality of its assets.13
Because high-quality collateral can
become scarce in times of stress, risks
can increase for leveraged firms that rely
on repos to obtain margin-eligible
securities. Potential difficulties in
obtaining high-quality collateral during
large market movements that trigger
margin increases illustrate how
collateral transformation transactions
can compound risks. For leveraged
firms that engage in strategies in both
cash and derivatives markets, the
inability to obtain collateral to post
margin could undermine their ability to
maintain a hedged position, and could
force a disorderly unwind. This use of
repos can therefore create linkages that
can enable the propagation of shocks
through securities financing,
derivatives, and securities markets.
iv. Facilitating Hedging
Repos can be used as a lower-cost way
to hedge specific risks than individually
buying and selling assets. For example,
by allowing underwriters to borrow and
short an issuer’s outstanding securities,
repo markets let underwriters hedge the
risk associated with holding newly
issued securities that they have
underwritten but not yet placed. This
decreases the risk to underwriters and
may reduce the cost to issuers. The
reduced capacity of the repo market to
facilitate hedging during periods of
market stress can therefore make it more
difficult for firms to manage exposures
and engage in financial intermediation.
v. Supporting Secondary Market
Efficiency and Liquidity
This final function of repos refers to
their potential benefits for financial
markets as a whole. Repo markets
support secondary market efficiency
and liquidity in securities markets both
by funding dealer inventories and by
helping dealers to source securities.
Both allow dealers to quote prices on a
broader range of securities more readily,
thereby increasing asset market
liquidity. Additionally, the ability of
market participants to use repos to
obtain securities for short sales
improves pricing efficiency.
Repos allow dealers to quote prices
more readily, improving market
liquidity in two ways. First, because the
repo market helps dealers to more
effectively monetize assets on their
13 This approach is of particular importance to
firms that hold lower-quality assets and engage in
trades in, for example, derivatives, where higherquality assets are required for margining.
PO 00000
Frm 00003
Fmt 4702
Sfmt 4702
balance sheet,14 dealers are able to
maintain larger inventories at a lower
cost, which may allow them to quote
prices on (i.e., offer to sell) a larger
volume or wider array of securities.
Second, by enabling dealers to borrow
securities on a short-term basis, repo
markets allow dealers to quote prices for
securities they do not currently hold in
inventory but know they can access—a
virtual inventory. Without repos, a
dealer would have to maintain larger
inventories at increased capital costs to
make markets, adding to costs for the
dealer and, by extension, issuers and
investors. Thus, repo markets are
critical to dealer trading and supporting
market efficiency and liquidity.
The secondary market efficiency and
liquidity provided by repos depend on
a funding market with relatively stable
collateral values. Repos create a tight
coupling between funding liquidity and
market liquidity. This can create a
situation where a negative shock to the
value of assets in dealers’ portfolios
reduces their ability to fund those
portfolios. That reduces market
liquidity, which can further reduce
dealers’ ability to fund their portfolios.
Market liquidity provided by repos
reinforces and is reinforced by the
funding liquidity available to traders.
Shocks to either market liquidity or
funding liquidity can negatively affect
both, potentially leading to liquidity
spirals.15 In extreme scenarios, liquidity
spirals can manifest as fire sales in
which firms are forced to deleverage
with no ready buyers. That may cause
prices to plummet below assets’
fundamental value, which, in turn, may
force further deleveraging.
b. Structure of the U.S. Repurchase
Agreement Market
In the United States, repos are often
described as occurring in either the triparty or bilateral market. However, a
more precise way of describing the
segments of the U.S. repo market is to
distinguish between transactions that
are settled on the books of tri-party
custodian banks, and repos that are
settled on a delivery-versus-payment
(‘‘DVP’’) basis. There are two market
segments that rely on tri-party custodian
banks for settlement. First, there is a
non-centrally cleared segment,
traditionally referred to as ‘‘tri-party
repo.’’ Second, there is a centrally
cleared segment, consisting of the
14 See Section II.A.ii, Repurchase Agreement
Background, Monetizing Liquid Assets.
15 See Markus K. Brunnermeier and Lasse Heje
Pedersen, ‘‘Market Liquidity and Funding
Liquidity,’’ The Review of Financial Studies, Vol.
22, no. 6 (June 2009), https://doi.org/10.1093/rfs/
hhn098.
E:\FR\FM\10JYP1.SGM
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
General Collateral Financial Repurchase
Agreement service (‘‘GCF Repo’’), that
provides trade matching and netting
services on general collateral repos. DVP
transactions also occur in two segments:
Centrally cleared DVP repos; and
uncleared DVP repos, typically referred
to as bilateral repos, which involve two
parties contracting directly without a
central counterparty.
In tri-party repo, settlement occurs
through a bank that provides collateral
valuation, margining, and management
services. The settlement bank provides
back-office support to both parties in the
trade by settling the repo on its books
and confirming the terms of the repo,
such as eligible collateral and haircuts,
are met.16 Agreements in tri-party repo
are between specified counterparties
and are made on a general collateral
basis. In general collateral transactions,
cash providers accept classes of
securities at set haircuts rather than
specific securities.
In GCF Repo, qualified members of
the Fixed Income Clearing Corporation
(‘‘FICC’’) Government Securities
Division can trade repos on a general
collateral basis without revealing their
identities to counterparties. FICC, a
subsidiary of the Depository Trust &
Clearing Corporation (‘‘DTCC’’),
provides the GCF Repo service. GCF
Repo-eligible collateral consists of
government and agency securities
eligible for settlement via Fedwire, the
Federal Reserve’s payment and
settlement system.17 FICC acts as a CCP
for participating members. Interposing a
common counterparty for all
transactions allows broker-dealers to
limit counterparty risk and provides
netting benefits. Transacting in GCF
Repo is efficient because participants do
not have to assign collateral for each
specific trade; instead, collateral held at
a tri-party clearing bank is allocated to
net positions at the end of the day. The
elimination of trade-by-trade DVP
delivery requirements reduces
participants’ operational costs. The GCF
Repo service recently was expanded to
include Centrally Cleared Institutional
Triparty (‘‘CCIT’’), a channel through
amozie on DSK3GDR082PROD with PROPOSALS1
16 Additionally,
the settlement bank acts as
custodian for the securities held as collateral and
allocates collateral to trades at the close of the
business day. This ensures that the party receiving
securities receives the correct asset class, value, and
haircut, while confirming that any newly posted
collateral substituted during the life of the
transaction meets the cash provider’s collateral
requirements.
17 See Paul Agueci, Leyla Alkan, Adam Copeland,
Isaac Davis, Antoine Martin, Kate Pingitore,
Caroline Prugar, and Tyisha Rivas, ‘‘A Primer on
the GCF Repo® Service,’’ Federal Reserve Bank of
New York Staff Reports no. 671 (2014), https://
www.newyorkfed.org/research/staff_reports/
sr671.html.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
which institutional counterparties
(other than investment companies
registered under the Investment
Company Act of 1940, as amended 18)
can participate as cash providers in GCF
Repo on a specified counterparty basis.
This new service may lead to a tighter
coupling between the GCF Repo and triparty repo market segments, because it
enables tri-party lenders that previously
could not participate in the GCF repo
market to lend directly to a cash
borrower in the GCF repo market.
Outside the tri-party custodian banks,
FICC operates the DVP Service as an
additional repo platform for qualified
members of its Government Securities
Division.19 Through this platform,
bilateral repo transactions are novated
to FICC, which then acts as a central
counterparty to the transactions.20 This
platform provides settlement netting for
legs of repo transactions occurring after
the initial date of the agreement.
Participants execute bilateral repos with
other FICC members and submit
security-specific trades for matching,
comparison, and settlement. While
some of these trades are negotiated on
a general collateral basis, their
settlement occurs on a specific-security
basis.
Finally, there are uncleared bilateral
repos, in which counterparties negotiate
repo transactions directly with one
another. A firm engaging in uncleared
bilateral repos must manage the
collateral flow, processing, settlement,
valuation, and margining itself.
Analysis of data on primary dealer
positions suggests that dealers act as
cash providers in $3.0 trillion of
bilateral repos, including those
conducted through the DVP Service.21
c. Data Available on U.S. Repurchase
Agreement Activity
While some members of the Council
have access to certain data about the
repo market, the data are insufficient to
draw a complete picture of U.S. repo
market activity and the associated
U.S.C. 80a–1 et seq.
David Bowman, Joshua Louria, Matthew
McCormick, and Mary-Frances Styczynski, ‘‘The
Cleared Bilateral Repo Market and Proposed Repo
Benchmark Rates,’’ FEDS Notes (February 27, 2017),
https://doi.org/10.17016/2380-7172.1940.
20 Novation in this context refers to the process
by which the clearinghouse becomes the
counterparty to both of the participants to the
transaction. Novation is the substitution or swap of
two parties in a contractual agreement., according
to Black’s Law Dictionary (10th ed., 2014).
21 See Viktoria Baklanova, Cecilia Caglio, Marco
Cipriani, and Adam Copeland, ‘‘The U.S. Bilateral
Repo Market: Lessons from a New Survey,’’ OFR
Brief Series no. 16–01 (January 13, 2016), https://
www.financialresearch.gov/briefs/files/OFRbr-201601_US-Bilateral-Repo-Market-Lessons-fromSurvey.pdf.
PO 00000
18 15
31899
vulnerabilities. As the financial crisis
demonstrated, high-quality information
is one of the best tools for identifying
the build-up of risk. While
improvements have been made, a full
picture of all segments of the U.S. repo
market is still largely unavailable. This
proposed collection will cover certain
centrally cleared repo transactions,
allowing the Office to gather data on a
mandatory basis on what it estimates to
be approximately one-quarter of the U.S.
repo market.22 While this proposed
collection will not yet provide a full
picture of the entire U.S. repo market,
when taken together with information
collected about other types of repos by
other regulators, discussed below, this
proposed collection will enable access
to transactional data on approximately
half of U.S. repo market activity.
i. Tri-Party Repurchase Agreements
The Board of Governors of the Federal
Reserve System (‘‘Federal Reserve
Board’’), through the Federal Reserve
Bank of New York (‘‘FRBNY’’),
supervises the two tri-party custodian
banks and, on a mandatory basis
pursuant to its supervisory authority,
collects daily data on transactions in
these markets.23 The data include
information on: The interest rate; the
counterparties; the collateral pledged;
the type of transaction; the transaction
initiation date; the transaction effective
date; the transaction maturity date;
whether the transaction is open-ended;
the value of the funds borrowed;
whether the transaction includes an
option; and, if the transaction includes
an option (e.g., the ability to extend or
terminate early), the minimum notice
period required to exercise it.24
Additionally, the FRBNY makes some
aggregated data on tri-party repo
publicly available. As of April 2018,
daily tri-party repo volumes totaled
about $1.8 trillion.25
ii. Centrally Cleared General Collateral
Repurchase Agreements
A centrally cleared general collateral
repo is a transaction that is cleared by
19 See
Frm 00004
Fmt 4702
Sfmt 4702
22 As
measured by U.S. dollar volume.
of New York Mellon (‘‘BNYM’’) and
JPMorgan Chase (‘‘JPMC’’) currently serve as the
two clearing banks in the tri-party repo market.
JPMC announced in July 2016 that it plans to exit
government securities settlement for broker-dealers
by the end of 2018. After 2018, BNYM may become
the sole clearing bank in the tri-party repo market
for Treasury securities. See Federal Reserve Board,
Request for Information Relating to Production of
Rates, 82 FR 41259, 41260 (August 30, 2017).
24 See 82 FR 41259, 41260 (August 30, 2017).
25 See Federal Reserve Bank of New York, ‘‘TriParty-GCF Repo,’’ undated online content, https://
www.newyorkfed.org/data-and-statistics/datavisualization/tri-party-repo#interactive/volume/
collateral_value.
23 Bank
E:\FR\FM\10JYP1.SGM
10JYP1
31900
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
a CCP where the settlement obligation is
for an acceptable asset class as opposed
to a specific security. Currently, only
FICC offers this type of centrally cleared
U.S. service, through its GCF Repo
service. While the FRBNY has entered
into a voluntary agreement with an
affiliate of FICC, DTCC Solutions LLC
(‘‘DTCC Solutions’’), to obtain limited
daily data regarding GCF Repo
transactions,26 there is no mandatory
collection of detailed transaction data
from GCF Repo. The data set provided
under the voluntary agreement includes:
The interest rate of the transaction;
information on the collateral that may
be pledged in the transaction; the date
the transaction is initiated; the date the
transaction becomes effective; the date
the transaction matures; the value of
funds borrowed in the transaction; and
an indicator differentiating between
repos and reverse repos in relation to
the CCP.27 Notably, the data submission
to the FRBNY does not include the
identities of counterparties, although
the FICC platform collects this
information as a consequence of its
trade processing. As of September 2017,
daily GCF Repo volumes totaled about
$400 billion on a gross basis.28
iii. Centrally Cleared Specific-Security
Repurchase Agreements
A centrally cleared specific-security
repo is a transaction that is cleared by
a CCP where the settlement obligation is
for a mutually agreed upon specific
security, such as a security identified by
a particular CUSIP or ISIN.29 In the
United States, currently only FICC offers
this type of centrally cleared repo
service through its DVP Service, through
which bilateral repo transactions
become centrally cleared. As is the case
with existing centrally cleared general
collateral repo, there is no mandatory
regulatory collection of data on centrally
cleared specific-security repo. Like GCF
Repo, DTCC Solutions also provides
limited daily data on transactions under
FICC’s DVP Service to the FRBNY under
26 See
82 FR 41259, 41260 (August 30, 2017).
amozie on DSK3GDR082PROD with PROPOSALS1
27 Id.
28 See Federal Reserve Bank of New York, ‘‘TriParty-GCF Repo,’’ undated online content, https://
www.newyorkfed.org/data-and-statistics/datavisualization/tri-party-repo#interactive/tripartygcf.
29 CUSIP is a nine-character alphanumeric code
that identifies a North American financial security
for the purposes of facilitating clearing and
settlement of trades. The CUSIP system is owned
by the American Bankers Association and is
operated by S&P Global Market Intelligence. The
International Securities Identification Number
(ISIN) is a 12-character alphanumeric code that
serves for uniform identification of a security
through normalization of the assigned National
Number. CUSIP serves as the National Securities
Identification Number for products issued in the
United States and Canada.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
a voluntary agreement. The data include
information only on repos backed by
U.S. Treasury securities. For each trade,
information is provided on the interest
rate of the transaction; the specific
collateral that is pledged in the
transaction; the date the transaction is
initiated; the value of funds borrowed in
the transaction; and a field indicating
whether the CCP is lending cash or
securities.30 As with the GCF Repo
service, FICC’s DVP Service data
submission does not include
counterparty information. FICC’s DVP
Service is estimated to clear about $400
billion in same-day-start overnight repos
collateralized by Treasury securities
alone.31
iv. Uncleared Bilateral Repurchase
Agreements
Unlike the other three repo market
segments, the wholly bilateral nature of
uncleared repo means there is no central
source for comprehensive data. To
better understand the bilateral repo
market, determine the value of a
potential data collection, and gain
insights into the design of such a
collection, the Office and the Federal
Reserve, with input from the Securities
and Exchange Commission (‘‘SEC’’),
conducted a pilot program collecting
information on both centrally cleared
and uncleared bilateral repo
transactions. The pilot collection took
place in 2015 and gathered data from a
subset of U.S.-based broker dealers. The
results and lessons learned were
published in January 2016.32 While the
pilot did not survey all market
participants, the paper summarizing the
results of the pilot used data from the
Federal Reserve’s FR 2004 report, which
collects information on market activity
from primary dealers in U.S.
government securities, to estimate that
dealers provide on a daily basis about
$3.0 trillion in cash in cleared and
uncleared bilateral repo combined.33
Significant lessons were learned about
the uncleared bilateral repo market from
the pilot. The Office is considering a
separate rulemaking in the future to
collect data on an ongoing basis about
the uncleared bilateral segment of the
U.S. repo market.
82 FR 41259, 41261 (August 30, 2017).
Bowman, Louria, McCormick, and
Styczynski (February 27, 2017).
32 See Office, Bilateral Repo Data Collection Pilot
Project, undated online content, https://
www.financialresearch.gov/data/repo-data-project/.
Nine bank holding companies voluntarily provided
data on their outstanding bilateral repo and
equivalent securities lending trades for three days.
33 See Baklanova, Caglio, Cipriani, and Copeland
(January 13, 2016).
PO 00000
30 See
31 See
Frm 00005
Fmt 4702
Sfmt 4702
III. Alternative Reference Rate
Background
LIBOR is a set of widely-used
reference rates for different currencies
and maturities that is intended to
represent the cost of unsecured
borrowing in the interbank market. The
sustainability of U.S. dollar LIBOR is
uncertain. In the wake of scandals
arising from misconduct related to
LIBOR submissions, banks have become
increasingly reluctant to participate in
the U.S. dollar LIBOR panel, and market
participants generally have trended
away from unsecured funding and
toward secured funding transactions.34
Only about one-quarter of current
benchmark 3-month U.S. dollar LIBOR
submissions are based on actual
transactions because of the low volume
of unsecured funding transactions.35
With fewer transactions, panel members
are less able to rely on arm’s-length
transactions as the basis for their
submissions, which subjects
participating firms to possible criticism
or litigation risk. For these reasons,
some U.S. dollar LIBOR participants
have questioned their continued
involvement. Recognizing the need to
continue LIBOR publication while
alternatives are identified and
operationalized, the U.K. Financial
Conduct Authority (‘‘FCA’’) released a
consultation paper discussing its ability
to compel banks to continue providing
submissions to the LIBOR panel.36 The
paper concluded that the FCA’s powers
are time-limited and cannot guarantee
the ongoing viability of LIBOR.
Subsequently, the FCA secured a
voluntary agreement with the LIBOR
panel banks for their continued
participation in LIBOR panels through
2021.37
For several years, the Council has
recommended the identification of
alternative reference rates.38 Most
recently, in its 2017 annual report, the
Council encouraged the completion of
work to develop a credible
34 See Office’s 2017 Financial Stability Report,
pp. 27–28.
35 See ICE Benchmark Administration’s ICE
LIBOR Quarterly Volume Report, Q1 2018, https://
www.theice.com/publicdocs/ICE_Libor_Quarterly_
Volume_Report_Q1_2018.pdf.
36 See Financial Conduct Authority, ‘‘Powers in
Relation to LIBOR Contributions’’ (June 2017), pp.
15–16, https://www.fca.org.uk/publication/
consultation/cp17-15.pdf.
37 See Financial Conduct Authority, ‘‘FCA
Statement on LIBOR Panels’’ (November 24, 2017),
https://www.fca.org.uk/news/statements/fcastatement-libor-panels.
38 See Financial Stability Oversight Council,
recommendations in 2014, 2015, 2016, and 2017
annual reports, https://www.treasury.gov/
initiatives/fsoc/studies-reports/Pages/2017-AnnualReport.aspx.
E:\FR\FM\10JYP1.SGM
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
amozie on DSK3GDR082PROD with PROPOSALS1
implementation plan to achieve a
smooth transition to the new rate.39
Following a report by the Financial
Stability Board, the U.S. effort to
identify alternative interest rate
benchmarks to U.S. dollar LIBOR was
coordinated by the Federal Reserve and
supported by the Council.40 The Federal
Reserve convened the ARRC in
November 2014, with representation
from many of the largest dealers.41 This
body, a voluntary, industry-led effort,
worked to identify a preferred
alternative reference rate and lay out a
roadmap for a transition to that rate.
In December 2017, the Federal
Reserve Board announced that the
FRBNY, in cooperation with the Office,
would begin producing three new
reference rates based on repo
transaction data during the second
quarter of 2018.42 These three rates are
the tri-party general collateral rate, the
BGCR, and the SOFR. Publication of
these rates began on April 3, 2018.43
The BGCR consists of overnight repos
backed by Treasury securities that occur
in tri-party repo and the GCF Repo
service. The SOFR consists of overnight
repos backed by Treasury securities that
occur in the tri-party repo market, the
GCF Repo service, and the DVP
Service.44 The ARRC selected the SOFR
as its preferred alternative to U.S. dollar
LIBOR.45 The FRBNY is currently
39 See Financial Stability Oversight Council, 2017
Annual Report, p. 13, https://www.treasury.gov/
initiatives/fsoc/studies-reports/Documents/FSOC_
2017_Annual_Report.pdf.
40 See Financial Stability Board report, Reforming
Major Interest Rate Benchmarks (July 22, 2014),
https://www.fsb.org/2014/07/r_140722/. See
Financial Stability Oversight Council, 2014, 2015,
2016, and 2017 annual reports, https://
www.treasury.gov/initiatives/fsoc/studies-reports/
Documents/FSOC%202016%20
Annual%20Report.pdf.
41 See Alternative Reference Rates Committee,
minutes for December 2014 meeting, and list of
initial ARRC representatives (December 12, 2014),
https://www.newyorkfed.org/medialibrary/
microsites/arrc/files/2015/Dec-12-2014-ARRCMinutes.pdf. The committee’s current membership
is available at https://www.newyorkfed.org/arrc/
governance.html.
42 See Federal Reserve Board, Production of Rates
Based on Data for Repurchase Agreements, 82 FR
58397 (December 12, 2017).
43 See Federal Reserve Bank of New York,
Statement Introducing the Treasury Repo Reference
Rates (April 3, 2018), https://www.newyorkfed.org/
markets/opolicy/operating_policy_180403.
44 Production of this new rate, in addition to
addressing a financial stability issue, may improve
market liquidity, as benchmark regulation has been
found to do. See Matteo Aquilina, Gbenga Ibikunle,
Vito Mollica, and Tom Steffen, ‘‘Benchmark
Regulation and Market Quality,’’ U.K. Financial
Conduct Authority Occasional Paper no. 27 (July 3,
2017), https://www.fca.org.uk/publication/
occasional-papers/op17-27.pdf.
45 See Alternative Reference Rates Committee,
The ARRC Selects a Broad Repo Rate as its
Preferred Alternative Reference Rate, (June 22,
2017), https://www.newyorkfed.org/medialibrary/
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
producing the SOFR and BGCR using
the tri-party repo data it collects from
BNYM through the Federal Reserve
Board’s supervisory authority and the
data it obtains through the voluntary
agreement with DTCC Solutions,
discussed above. This proposed
collection is expected to provide an
ongoing and expanded source of data to
support rates such as the SOFR and
BGCR, helping to fulfill the Council’s
recommendation for the identification
of alternative reference rates.
IV. Justification for Proposed Collection
a. Collection of Centrally Cleared
Repurchase Agreement Data
i. Importance of Centrally Cleared
Repurchase Agreement Data for
Monitoring Financial Stability Risks
The collection of data on the centrally
cleared segments of the repo market
marks an important step in carrying out
the Council’s recommendation to
expand and make permanent the
collection of data on the U.S. repo
market. The Council recommended a
permanent collection of repo data in its
2016 annual report to improve
transparency and risk monitoring which
was reiterated in the 2017 annual
report.46 The Office believes that the
proposed approach of collecting certain
cleared repo data from CCPs, which
already collect most or all of the
requested data during trade processing,
will result in lower aggregate costs to
market participants than a collection
from individual participants. FICC has
indicated that on average, it matches,
nets, settles, and risk-manages centrally
cleared repo transactions valued at more
than $1.7 trillion per day.47 This
proposed collection is expected to result
initially in reporting only from two
FICC services: The GCF Repo Service (a
general collateral repo service),
including CCIT; and the DVP Service (a
specific-security repo service). This
proposed collection, together with
existing data collected on tri-party
repos, will allow about half of the
estimated activity in the U.S. repo
microsites/arrc/files/2017/ARRC-press-release-Jun22-2017.pdf.
46 See Financial Stability Oversight Council, 2017
Annual Report, p. 14, https://www.treasury.gov/
initiatives/fsoc/studies-reports/Documents/FSOC_
2017_Annual_Report.pdf and 2016 Annual Report,
p. 14, https://www.treasury.gov/initiatives/fsoc/
studies-reports/Documents/FSOC%202016%20
Annual%20Report.pdf.
47 See Depository Trust & Clearing Corporation,
DVP Repo Transactions, undated online content,
https://www.dtcclearning.com/products-andservices/fixed-income-clearing/governmentsecurities-division-gsd/dvp-service/dvp-repotransactions.html.
PO 00000
Frm 00006
Fmt 4702
Sfmt 4702
31901
market by volume to be analyzed and
monitored.48
The collection of transactional data on
centrally cleared repos is key to the
Council’s effective identification and
monitoring of emerging threats to the
stability of the U.S. financial system.
The repo market plays a number of
critical functions which have associated
vulnerabilities that could give rise to
conditions that impair the ability of
repo markets to perform. These
functions also create linkages between
different financial markets and
institutions, and therefore potential
channels for the propagation of shocks.
These vulnerabilities have developed in
the past into threats to U.S. financial
stability, most notably during the 2007–
09 financial crisis.49
Despite the vulnerabilities, only one
of the four segments of the U.S. repo
market, the tri-party repo segment, is
currently subject to a mandatory
regulatory data collection. Data gaps and
the absence of mandatory collections are
a significant impediment to the
Council’s and its member agencies’
ongoing ability to monitor
developments in the repo market and
potential emerging threats to financial
stability. The lack of comprehensive
data on repos creates material blind
spots with regard to the most active
short-term funding market in the U.S.
financial system. This proposed
collection is an important step in
eliminating these blind spots.
From a financial stability perspective,
it is important to monitor transactions
in centrally cleared repo for three
reasons. First, repos that are transacted
through a CCP on a blind-brokered basis
can act as a critical market for repo
borrowers that are under stress. Even
uncleared repos backed by high-quality
collateral can become sensitive to
counterparty risk, potentially resulting
in a run on the institution’s funding.50
Shifts in activity from specificcounterparty repos to blind-brokered
48 See Baklanova, Caglio, Cipriani, and Copeland
(January 13, 2016), using a method first outlined in
Copeland, et al., ‘‘Lifting the Veil on the U.S.
Bilateral Repo Market.’’ Liberty Street Economics:
https://libertystreeteconomics.newyorkfed.org/2014/
07/lifting-the-veil-on-the-us-bilateral-repomarket.html.
49 During the financial crisis, the repo market first
began to show stress in the summer of 2007, and
runs on repos played a central role in the failures
of Bear Stearns and Lehman Brothers. These threats
can manifest quickly; the run on Bear Stearns took
place over less than a week. See Financial Crisis
Inquiry Commission, ‘‘Conclusions of the Financial
Crisis Inquiry Commission,’’ (January 2011) pp.
286–290.
50 See Adam Copeland, Antoine Martin, and
Martin Walker, ‘‘Repo Runs: Evidence from the TriParty Repo Market’’ (2011), Federal Reserve Bank of
New York Staff Reports.
E:\FR\FM\10JYP1.SGM
10JYP1
31902
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
transactions can therefore indicate
market perceptions that a firm may be
under stress.
Second, while counterparty risk is
mitigated by the use of CCPs, adverse
changes in the value of collateral can
propagate shocks arising elsewhere in
the financial system to CCP members by
impacting their ability to borrow in
centrally cleared repo.51 Further,
collateral held at tri-party custodian
banks that is used in centrally cleared
repos within the tri-party system is not
available for delivery outside of the triparty system, making information on the
collateral used in this venue important
for understanding broader market
dynamics.
Third, while CCPs offer benefits in
terms of settlement and risk
management, they may also propagate
shocks to their members. If a repo CCP
were to fail, the repo intermediation
capacity of the financial system would
be limited during a period of market
stress. Even if this risk were judged to
be remote, in a circumstance where, as
here, there may be only one CCP,
disruption of such a critical service
could have severe implications. For
these reasons, and as noted by the
Council in its 2017 annual report,
further analysis of risks related to CCPs
is appropriate.52
Questions:
1. Is a data collection on centrally
cleared repo transactions as proposed
appropriate? Does a centrally cleared
repo collection support the Council’s
recommendations?
2. To what extent may collecting
counterparty information improve
financial stability monitoring?
amozie on DSK3GDR082PROD with PROPOSALS1
ii. Importance of Centrally Cleared
Repurchase Agreement Data to
Alternative Reference Rates
This proposed collection is expected
to support the calculation of the SOFR,
the ARRC’s preferred alternative
reference rate. The SOFR relies on
Treasury repo data from three of the
four segments of the U.S. repo market.
51 The linkages between funding and asset
markets creates risk of spillovers from one market
to another because of the shared use of collateral.
Price impacts on collateral arising from the forced
sale of collateral due to the lack of confidence in
the collateral or a particular counterparty can have
widespread effects beyond the original transactions,
leading to contagion that can culminate in fire sales
and potential threats to financial stability. The
shared use of collateral between different segments
of the repo market therefore creates a channel
through which centrally cleared repo transactions
can be impacted by activity in other portions of the
repo market.
52 See Financial Stability Oversight Council, 2017
Annual Report, pp. 123–4, https://
www.treasury.gov/initiatives/fsoc/studies-reports/
Documents/FSOC_2017_Annual_Report.pdf.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
The Federal Reserve collects data for the
tri-party portion through its supervisory
authority over the clearing banks. While
data on some GCF Repo and DVP
Service transactions are available to the
FRBNY through a voluntary agreement
with DTCC Solutions, a permanent
collection of these data will increase
confidence that the alternative reference
rate’s inputs will continue to be
available. This viability is important
because the long-term success of any
alternative reference rate relies on the
confidence market participants place in
it.
Another benefit of this proposed
collection is the ability to require
specific data fields from centrally
cleared general collateral repo and
centrally cleared specific-security repo
services for use in reference rate
calculation.53 The Office has reviewed
these data fields with the FRBNY and
believes the information would help to
improve and ensure the ongoing quality
of the SOFR and BCGR. From an early
stage, the Office has contributed to the
development of alternative reference
rates and has designed this proposed
collection to maximize its compatibility
with alternative reference rates. Some of
the data fields in this proposed
collection that are not currently
received under the voluntary agreement
between the FRBNY and DTCC
Solutions would help ensure the
continued quality of the rates. Most
notably, the identity of transaction
counterparties is important for rate
calculation as it allows the calculation
agent to identify and, as appropriate,
exclude, transactions (e.g., affiliate
transactions) that may not be
representative of market activity.
Further, by making available data on
trades that are outside the current scope
of the voluntary data collection that
supports the rates, this proposed
collection would allow the Federal
Reserve and the Office to better monitor
the evolution of markets and ensure that
the rates continue to target their
intended underlying interests.
Finally, this proposed collection
would help ensure the long-term
viability of the SOFR and BGCR by
including within its scope reporting
from certain central counterparties that
meet the $50 billion activity-based
materiality threshold. This assures rate
production will be able to include new
comparable transactions in the
calculation of the rate as U.S. repo
markets evolve in the future. This is of
particular importance given that trading
in products tied to the new rate might
53 See infra Section V(b), information required,
for a discussion of individual data fields.
PO 00000
Frm 00007
Fmt 4702
Sfmt 4702
eventually subsume most volume that is
currently tied to U.S. dollar LIBOR. This
proposed collection will help ensure a
continued source of standardized data
on centrally cleared repos regardless of
potential changes in market structure.
Questions:
3. Would establishing a regulatory
reporting requirement to collect data on
centrally cleared repos help ensure the
continued availability and quality of the
ARRC’s selected alternative reference
rate?
b. Uses of the Data Collection
This proposed collection will be used
by the Office to improve the Council’s
and member agencies’ monitoring of the
U.S. repo market and identifying and
assessing potential financial stability
risks. The additional daily transaction
data this proposed collection will
provide will facilitate identification of
potential repo market vulnerabilities
and will also help identify shifting repo
market trends that could be
destabilizing or indicate stresses
elsewhere in the financial system. Such
trends might be reflected in indicators
of the volume and price of funding in
the repo market at different tenors,
differentiated by the type and credit
quality of participants and the quality of
underlying collateral. Further, analyzing
the collateral data from this collection
together with other data available to the
Office, the Council, and member
agencies will enable a clearer
understanding of collateral flows in
securities markets and potential
financial stability risks.
The Office expects, consistent with
the Dodd-Frank Act, to share data and
information with the Council and
member agencies, and such data and
information must be maintained with at
least the same level of security as used
by the Office and may not be shared
with any individual or entity without
the permission of the Council.54
Consistent with this authority, the
Office expects to make available the
data from this proposed collection to the
Federal Reserve Board and the FRBNY
for purposes of meeting the above
alternative reference rate and
monitoring objectives as well as other
market analysis and research. The Office
will also make data collected and
maintained under this proposed
collection available to the Council and
member agencies, as necessary to
support their regulatory
responsibilities.55 The sharing of any
data from this proposed collection will
be subject to the confidentiality and
54 12
55 12
E:\FR\FM\10JYP1.SGM
U.S.C. 5343(b).
U.S.C. 5344(b)(5).
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
security requirements of applicable
laws, including the Dodd-Frank Act.56
Pursuant to the Dodd-Frank Act, the
submission of any non-publicly
available data to the Office under this
proposed collection will not constitute
a waiver of, or otherwise affect, any
privilege arising under federal or state
law to which the data or information is
otherwise subject.57
Aggregate or summary data from this
proposed collection might be provided
to the public to increase market
transparency and facilitate research on
the financial system, to the extent that
intellectual property rights are not
violated, business confidential
information is properly protected, and
the sharing of such information poses
no significant threats to the U.S.
financial system. The potential sharing
of aggregate or summary data collected
under this proposed collection would
help fulfill a recommendation of the
Council to make appropriately
aggregated securities financing data
available to the public.58
The Office may also use the data to
sponsor and conduct additional
research.59 This research may include
the use of these data to help fulfill the
duties and purposes under the DoddFrank Act relating to the responsibility
of the Office’s Research and Analysis
Center to develop and maintain
independent analytical capabilities to
support the Council and relating to the
programmatic functions of the Office’s
Data Center.60 For example, access to
data on centrally cleared repos will
allow the Office to conduct research
related to the Council’s analysis of
potential risks arising from securities
financing activities.
c. Legal Authority
The ability of the Office to collect
centrally cleared repo data in this
proposed collection derives in part from
the authority to promulgate regulations
regarding the type and scope of
financial transaction and position data
from financial companies on a schedule
determined by the Director in
consultation with the Council.61 The
Office consulted with the Council on
the proposed permanent collection of
56 E.g.,
12 U.S.C. 5343(b), 5344(b)(3).
U.S.C. 5343(b), 5322(d)(5).
58 See Financial Stability Oversight Council,
Council’s 2017 Annual Report, p. 16, https://
www.treasury.gov/initiatives/fsoc/studies-reports/
Documents/FSOC%202016%20
Annual%20Report.pdf.
59 12 U.S.C. 5343(b)(2).
60 12 U.S.C. 5344(b) discusses the Office’s Data
Center, and 12 U.S.C. 5344(c) discusses the various
uses of data by the Office’s Research and Analysis
Center to support the Council.
61 12 U.S.C. 5344(b)(1)(B)(iii).
amozie on DSK3GDR082PROD with PROPOSALS1
57 12
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
repo data at the Council’s September 22,
2016, meeting.62 The Office also
provided a public update to the Council
on November 16, 2017.63
The Office also has authority to
promulgate regulations pursuant to the
Office’s general rulemaking authority
under Dodd-Frank Act section 153,
which authorizes the Office to issue
rules, regulations, and orders to the
extent necessary to carry out certain
purposes and duties of the Office.64 In
particular, the purposes and duties of
the Office include supporting the
Council in fulfilling its duties and
purposes, and supporting member
agencies, by collecting data on behalf of
the Council and providing such data to
the Council and member agencies, and
standardizing the types and formats of
data reported and collected.65 The
Office must consult with the
Chairperson of the Council prior to the
promulgation of any rules under section
153 66—this consultation occurred prior
to the publication of this proposed
collection.
This proposed collection will support
the Council and member agencies by
addressing the Council’s
recommendation to expand and make
permanent the collection of data on the
U.S. repo market; helping the Council
and member agencies identify, monitor,
and respond to risks to financial
stability; identifying gaps in regulation
that could pose risks to U.S. financial
stability; and assisting in the production
of alternative reference rates.67 The
Office understands that the full scope of
transaction information on the centrally
cleared repo market required to fulfill
the purposes of this proposed collection
is not currently available to the Council
62 See Financial Stability Oversight Council,
meeting minutes (September 22, 2016), https://
www.treasury.gov/initiatives/fsoc/council-meetings/
Documents/September222016_minutes.pdf.
63 See Financial Stability Oversight Council,
meeting minutes (November 16, 2017), https://
www.treasury.gov/initiatives/fsoc/council-meetings/
Documents/November162017_minutes.pdf, and
Office, OFR Update on Bilateral Repo Collection
(November 22, 2017), https://
www.financialresearch.gov/from-the-managementteam/2017/11/22/ofr-update-on-bilateral-repocollection/.
64 12 U.S.C. 5343(a), (c)(1).
65 12 U.S.C. 5343(a). The Council’s purposes and
duties include identifying risks to U.S. financial
stability; responding to emerging threats to the
stability of the U.S. financial system; monitoring the
financial services marketplace in order to identify
potential threats to U.S. financial stability; making
recommendations in such areas that will enhance
the integrity, efficiency, competitiveness, and
stability of the U.S. financial markets; and
identifying gaps in regulation that could pose risks
to the financial stability of the United States. 12
U.S.C. 5322(a).
66 12 U.S.C. 5343(c)(1).
67 See supra, discussion in Section IV(a) about the
importance of collecting repo data.
PO 00000
Frm 00008
Fmt 4702
Sfmt 4702
31903
or member agencies, including the
primary financial regulatory agency for
clearing agencies. The Council has
recognized in its annual reports that
weaknesses in LIBOR raised financial
stability concerns and recommended the
identification of alternative reference
rates such as the secured, transactionsbased rates this proposed collection will
bolster. Thus, by supporting the
production of alternative reference rates,
this proposed collection will support
the Council in fulfilling its duties and
purposes.
The Office’s statutory authority allows
for the collection of transaction or
position data from financial
companies.68 ‘‘Financial company,’’ for
purposes of Office authority, has the
same meaning as in Title II of the DoddFrank Act.69 For this proposed
collection, the Office expects that CCPs
for repos, as defined in this proposed
collection, will typically be ‘‘financial
companies’’ as defined in Title II
because they are incorporated or
organized under federal or state law and
are companies ‘‘predominantly
engaged’’ in activities that the Federal
Reserve Board has determined are
financial in nature or incidental thereto
for purposes of section 4(k) of the Bank
Holding Company Act of 1956 70 (or
they are a subsidiary thereof).71 For a
company to be ‘‘predominantly
engaged’’ in activities that are financial
in nature or incidental thereto, either (1)
at least 85 percent of the total
consolidated revenues of the company
for either of its two most recently
completed fiscal years must be derived,
directly or indirectly, from financial
activities; or (2) based upon all the
relevant facts and circumstances, the
consolidated revenues of the company
from financial activities must constitute
85 percent or more of the total
consolidated revenues of the
company.72
Dodd-Frank Act section 201(b)
required the Federal Deposit Insurance
Corporation (‘‘FDIC’’) to issue a rule
establishing the criteria for determining
whether a company is predominantly
engaged in activities that are financial in
nature or incidental thereto for purposes
of Title II. The final rule adopted by the
FDIC indicates that the determination of
whether an activity is financial in
nature is based upon Section 4(k) of the
Bank Holding Company Act of 1956,
68 12
U.S.C. 5344(b)(1)(B)(iii).
U.S.C. 5341(2).
70 12 U.S.C. 1843(k).
71 A ‘‘financial company’’ also includes a bank
holding company or a nonbank financial company
supervised by the Federal Reserve Board. 12 U.S.C.
5381(a)(11).
72 12 CFR 380.8(a).
69 12
E:\FR\FM\10JYP1.SGM
10JYP1
31904
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
and that since the Federal Reserve
Board is the agency with primary
responsibility for interpreting and
applying Section 4(k), the FDIC
coordinated its rulemaking pursuant to
§ 201(b) of the Dodd-Frank Act with the
Federal Reserve Board’s rulemaking
defining the term ‘‘predominantly
engaged in financial activities’’ for
purposes of Title I of the Dodd-Frank
Act.73 Consistent with the Federal
Reserve Board’s final rule, the FDIC’s
final rule interpreting how to evaluate
whether an entity is a ‘‘financial
company’’ for purposes of Title II of the
Dodd-Frank Act includes the activities
of repo clearing including transferring
money or securities; providing any
device or other instrumentality for
transferring money or other financial
assets; providing financial data
processing, storage and transmission
services; arranging, effecting, or
facilitating financial transactions for the
account of third parties; and providing
to customers as agent transactional
services with respect to government
obligations.74 Given the necessary
experience, expertise and market
credibility, entities that clear repos will
typically be predominantly engaged in
these or related financial activities, and
therefore will be financial companies
and potentially covered reporters under
this proposal. The one expected covered
reporter appears to be predominately
engaged in these financial activities,
making it a financial company.75
V. Collection Design
amozie on DSK3GDR082PROD with PROPOSALS1
This proposed collection will be the
first recurring and mandatory data
collection from the Office. The proposed
regulatory text includes two sub-parts:
the first sets out general requirements
for data collection necessary for this
proposal and any future Office proposed
collections, and the second lists the
requirements specifically relevant to
this proposed collection. The first
regulatory text sub-part cites the
statutory authority of the Office to
require the submission of information.
The second regulatory text sub-part is
designed to describe individual
73 For the final version of each rule, see Federal
Reserve System, Definitions of ‘‘Predominantly
Engaged In Financial Activities’’ and ‘‘Significant’’
Nonbank Financial Company and Bank Holding
Company, Final Rule, 78 FR 20756 (March 29,
2013); and Federal Deposit Insurance Corporation,
Definition of ‘‘Predominantly Engaged in Activities
That Are Financial in Nature or Incidental
Thereto,’’ Final Rule, 78 FR 34712 (June 4, 2013).
74 12 CFR 380.8(b).
75 The Office has reviewed the disclosures of the
expected covered reporter and its parent under this
proposed collection and believes it is
predominantly engaged in financial activities and is
therefore a financial company.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
collections by the Office. This proposed
collection will be the first section under
this sub-part. The section includes three
tables that describe the data elements
that covered reporters will be required
to submit. The Office expects to publish
filing instructions regarding matters
such as data submission mechanics and
formatting in connection with any final
rule on the Office’s website.
a. Scope of Application
This proposed collection will require
the submission of transaction
information by any CCP whose average
daily total open commitments in repo
contracts across all services over all
business days during the prior calendar
quarter is at least $50 billion. ‘‘Open
commitments’’ refers to the CCP’s gross
cash positions, prior to netting. For
example, a CCP might clear two trades
beginning on the same day with an
overnight maturity; in the first trade,
Firm A lends $100 million to Firm B in
exchange for $100 million of securities,
and in the second trade, Firm C lends
Firm A $100 million in exchange for
$100 million of securities. The total
open commitments for the CCP for these
two trades is $200 million. A CCP is
defined in this proposed collection as ‘‘a
clearing agency that interposes itself
between the counterparties to
transactions, acting functionally as the
buyer to every seller and the seller to
every buyer.’’ 76 The Office proposes
defining ‘‘clearing agency’’ the same
way as in the Securities Exchange Act
of 1934, as amended, which defines a
clearing agency as ‘‘any person who acts
as an intermediary in making payments
or deliveries or both in connection with
transactions in securities or who
provides facilities for comparison of
data respecting the terms of settlement
of securities transactions, to reduce the
number of settlements of securities
transactions, or for the allocation of
securities settlement responsibilities.’’ 77
Only CCPs that are clearing agencies
and that perform the central clearing
function for repo transactions at or
above the volume threshold are required
to report as covered reporters under this
proposed collection. The regulatory text
also defines ‘‘repurchase agreement.’’ 78
76 This definition of ‘‘central counterparty’’ is
consistent with the definitions used by the
Committee on Payment and Market Infrastructures
and the International Organization of Securities
Commissions (‘‘CPMI–IOSCO’’), see Principles for
Financial Market Infrastructures (April 2012), p. 9,
https://www.bis.org/cpmi/publ/d101a.pdf, and the
Financial Stability Board, see Guidance on Central
Counterparty Resolution and Resolution Planning,
p. 22, https://www.fsb.org/wp-content/uploads/
P050717-1.pdf.
77 15 U.S.C. 78c(a)(23).
78 See Regulatory Text § 1610.10(a).
PO 00000
Frm 00009
Fmt 4702
Sfmt 4702
Requiring submission of transactionlevel repo data from CCPs allows for a
more efficient collection than a data
submission from each clearing member.
As noted above, this proposed
collection establishes a $50 billion
volume threshold for determining
whether a CCP is a covered reporter and
is therefore required to report. The
Office believes the proposed $50 billion
activity-based threshold indicates
sufficient volume for the CCP to be
considered a material CCP in the repo
market. One of the benefits of a CCP is
the netting it provides to clearing
members, which increases with the size
of the CCP’s services. As a result, CCPs
in a given market tend to be few in
number and large.
While the Office understands that
there is only one reporter currently
covered by this proposed collection’s
scope, any other CCP would be required
to start submitting data under this rule
beginning on the first business day of
the third calendar quarter after the
calendar quarter in which the CCP
meets the $50 billion activity-based
materiality threshold. For example, if a
CCP were to surpass the threshold
beginning with the quarter ending on
March 31 of a given year, that CCP
would become subject to the reporting
requirements of the rule on the first
business day of the calendar quarter that
begins after two intervening calendar
quarters—in this case, October 1.
A covered reporter whose volume
falls below the $50 billion threshold for
at least four consecutive calendar
quarters will have its reporting
obligations cease. For example, if a
covered reporter ceases to meet the $50
billion threshold beginning with the
quarter ending June 30 of a given year,
and remains below the $50 billion
threshold in each of the following three
quarters (in this example, through the
quarter ending March 31 of the
following year), its reporting obligations
would cease as of April 1.
This proposed collection will require
CCPs that meet the aforementioned repo
volume thresholds to report all repos
they clear. Given the existing
differences between how general
collateral and specific-security trades
are reported to repo clearing services,
this proposed collection separates the
reporting information required into
distinct schedules for each type of
centrally cleared repo service.
Questions:
4. The covered reporter definition
seeks to include in the rule’s scope only
current or future material repo CCPs.
The definition also seeks to exclude triparty custodian banks already required
to report on another portion of the repo
E:\FR\FM\10JYP1.SGM
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
market from reporting under this
proposal. Does the proposed covered
reporter definition meet this objective
and if not, what might the Office
consider as an alternative?
5. Is the $50 billion activity-based
volume threshold for identifying covered
reporters clear and appropriate for
ensuring the inclusion of only current or
future material repo CCPs?
6. Is collecting centrally cleared repo
transactions from CCPs more efficient
than collecting these transactions from
individual counterparties? How could
the collection be made more efficient?
7. Are the definitions of general
collateral trade and specific-security
trade in the proposed regulatory text
sufficiently clear to allow reporters to
determine on which schedules they
should be reporting?
amozie on DSK3GDR082PROD with PROPOSALS1
b. Information Required
This proposed collection has three
schedules: the first covers details on
general collateral trades, the second
covers details on the securities used to
collateralize net positions in general
collateral repo, and the third covers
specific-security trades. Each schedule
is tailored to capture specific
information regarding covered
transactions in a manner that the Office
believes reflects the data exchanged
with CCPs in the ordinary course of
business. The required data elements in
these schedules are listed in Tables 1, 2,
and 3 of Section § 1610(c) of the
proposed regulatory text. Each table lists
each required element and a brief
description of that element. Below is a
description of the general categories of
information covered by the collection
and further detail on certain key data
fields.
i. Legal Entity Identifier Usage
The Office’s published brief on the
interagency bilateral repo pilot
collection noted difficulties in working
with the data due to the absence of
standardized counterparty
information.79 Authorities from around
the world, including those in the United
States, have established a global legal
entity identifier (‘‘LEI’’) system, with
oversight effected by a Regulatory
Oversight Committee, composed of
those same authorities, to coordinate
and oversee a global system of legal
entity identification. A Swiss nonprofit
foundation, the Global LEI Foundation
(‘‘GLEIF’’), was established to provide
operational governance and
management of local operating units
that issue LEIs. The LEI is a 20-character
79 See Baklanova, Caglio, Cipriani, and Copeland
(January 13, 2016).
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
identifier based on the ISO 17442
standard that identifies distinct legal
entities that engage in financial
transactions. An LEI allows for
unambiguous identification of firms and
affiliates.80
The Office proposes to require
reporting of an LEI. The LEI reported
must be properly maintained, meaning
it must be kept current and up to date
according to the standards implemented
by the GLEIF. The Office believes that
while requiring the LEI may result in
some additional compliance costs,
doing so is reasonable and appropriate
due to the added clarity and substantial
benefit for the monitoring it provides
and rate production. Based on a review
of the public membership lists of
counterparties to the one expected
covered reporter, the Office estimates
that under the proposed collection,
approximately 800 counterparties will
need to acquire an LEI at a cost of
approximately $100 per instance
initially and approximately $50 on an
annual basis thereafter, for a total
aggregate cost of $80,000 to market
participants the first year and $40,000
annually thereafter. Each legal entity
transacting with a covered reporter will
be required to obtain only one LEI
regardless of the number of reported
transactions. The Office recognizes that
the LEI acquisition cost may be only a
portion of the total compliance cost for
repo counterparties, and that firms may
incur additional costs stemming from
the inclusion of the LEI in their trade
reporting systems. In this regard, there
are two viable options for including an
LEI in the data fields. The first option
is to amend the messaging system to
include the LEI. The second option is to
add LEIs of reporting entities and
counterparties after the transactions take
place but prior to submission of data to
the Office. While this second option
would require fewer parties to update
their systems, it is possible that market
participants may desire access to the
LEIs of their counterparties for risk
management purposes, thus making the
first option preferable to member firms.
Either option would be acceptable to the
Office.
Identification of the entities involved
in a covered repo transaction is
important to enhance the ability of the
Council and the Office to identify risks
to U.S. financial stability by allowing it
to understand repo market participants’
exposures, concentrations, and network
structures. This proposed collection
80 See Global Legal Entity Identifier Foundation,
Introducing the Legal Entity Identifier, undated
online content, https://www.gleif.org/en/about-lei/
introducing-the-legal-entity-identifier-lei/.
PO 00000
Frm 00010
Fmt 4702
Sfmt 4702
31905
requires the submission of the LEI of
each covered reporter, direct clearing
member, counterparty, and broker
involved in a covered transaction.81 The
LEIs of these entities will facilitate
evaluation of the covered transaction
and whether a covered transaction was
conducted on an arm’s-length basis or
between affiliates. Further, these LEIs
will reduce the need for manual
intervention in matching identical
participants that supply different
naming conventions depending on the
sponsoring broker reporting, and
eventually, when the LEI system fully
produces this capacity, in helping to
identify parent and affiliate
relationships.
Mandatory adoption of the LEI will
also benefit firms and regulators by
improving the ability to combine repo
information with other information
necessary to monitor system or firm
risk. This is particularly so given that
more than 1 million firms have obtained
an LEI and are therefore becoming
capable of obtaining these benefits. The
aggregate cost savings for the financial
service industry upon broader adoption
of the LEI have been estimated in the
hundreds of millions of dollars.82
This proposed collection includes
reporting fields for the LEIs of the direct
clearing members that are parties to a
covered transaction. This proposed
collection also includes reporting fields
for the LEIs of any cash or securities
provider that is a counterparty to the
transaction. For these fields,
respondents should indicate the LEI of
the indirect clearing member if one
exists, and otherwise the LEI of the
direct clearing member, that has
provided cash or securities. When a
registered broker is a counterparty to a
transaction, it should be listed both as
the broker and as a cash provider or
securities provider.
Questions:
8. What, if any, challenges do
participants in centrally cleared repo
markets anticipate regarding obtaining
and maintaining an LEI?
9. What, if any, challenges do
potential respondents anticipate in
reporting the LEIs of participants in
centrally cleared repo markets?
81 For purposes of the data reporting schedules,
a broker is an entity that is an SEC-registered broker
and is arranging a covered transaction for the
accounts of other entities acting as cash providers
or securities providers.
82 See generally, McKinsey & Company and
Global Legal Entity Identifier Foundation, ‘‘The
Legal Entity Identifier: The Value of the Unique
Counterparty ID,’’ (October 2017), pp. 4, 14, and 17,
https://www.gleif.org/en/about-lei/mckinseycompany-and-gleif-creating-business-value-withthe-lei/.
E:\FR\FM\10JYP1.SGM
10JYP1
31906
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
10. Would respondents and repo
market participants prefer to amend the
messaging system to include LEIs, or to
add LEIs of reporting entities and
counterparties after the transactions
take place but prior to submission of
data to the Office?
amozie on DSK3GDR082PROD with PROPOSALS1
ii. Transaction Information
Transaction-level data coupled with
counterparty information permit an
understanding of detailed exposures
among firms and across asset markets.
Transaction-level data are also
necessary inputs to calculate the SOFR
and BGCR. Transaction-level data will
require a unique identifier for each
transaction. This identifier must be
assigned by the covered reporter and
never re-used for another transaction
over the life of this proposed collection.
The transaction identifier must be
persistent throughout the life cycle of
the transaction, regardless of any
subsequent amendments to the
transaction, such as substitutions of
collateral. Because CCPs currently must
track the life cycle of each trade for
settlement purposes, some type of
unique identification scheme already
exists. Any CCP required to report
under this rule would be required to
submit its own unique, persistent
transaction identifier. As an alternative
to a reporter-generated transaction
identifier, the Office encourages, but is
not requiring, respondents to coordinate
with their counterparties to adopt and
report using the Unique Transaction
Identifier.83
In all cases where securities
identifiers are used, the type of
identifier must be reported, such as ISIN
or CUSIP. General collateral trade
submissions must contain information
on the security asset class in order to
identify the correct transactions for rate
production. This field must consist of
an identifier that corresponds to a set of
agreed-upon securities. Collateral
delivered against net exposures between
firms and CCPs must also be identified
83 The Unique Transaction Identifier (‘‘UTI’’),
alternatively called Unique Swap Identifier (‘‘USI’’),
is a globally unique identifier for individual
transactions in financial markets. USIs were
introduced in late 2012 in the United States, when
reporting transactions to trade repositories became
mandatory under the Dodd-Frank Act. The term
USI is specific to U.S. regulation, while the UTI
represents the output of a global effort among
regulators to harmonize transaction reporting
standards across jurisdictions. The method for
creating and maintaining UTIs was designed to
support existing USIs and provide a global
regulatory approach. Large trading firms reporting
under multiple regulatory regimes may use the
terms interchangeably. See CPMI–IOSCO,
Consultative Report on Harmonization of the
Unique Transaction Identifier (August 2015), https://
www.iosco.org/library/pubdocs/pdf/
IOSCOPD500.pdf.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
using a specific security identifier. This
provides information on how CCP
exposures are collateralized, as well as
the quantity of securities that have been
delivered against net exposures. The
general collateral trades also must
indicate whether the securities were
delivered to the CCP against a net
security delivery obligation or received
from the CCP as collateral against a net
cash loan.
Reporting on specific-security repos
will require a security identifier as well
as information on the quantity of
securities delivered against a position,
and whether substitution of collateral is
permitted. Knowing the quantity of
securities delivered will help determine
levels of over-collateralization in the
market and the flow of securities as
firms engage in security transformation
and acquire specific securities for
delivery or sale. Indicating whether
substitution of collateral is allowed may
indicate the motivation for a trade. In
the case of transactions allowing
collateral substitution, covered reporters
are required to supply an identifier
indicating the securities that are
acceptable to the cash provider as
substitutes under the repo for the
initially pledged collateral.
Questions:
11. The Office is not proposing the
reporting of a standardized transaction
identifier at this point. Is this the
appropriate decision and if so, at which
point should such an identifier be
required?
12. Should the UTI be required at this
point in the event that another covered
reporter comes into existence in order to
harmonize transactions across clearing
platforms?
iii. Date and Tenor Information
This proposed collection will require
information on the start and end dates
of transactions; the date that each
transaction was agreed to; whether a
trade has optionality; and, for repos that
are open or have optionality, the first
possible maturity of the transaction.
Existing CCPs do not presently allow for
optionality in repos or for open
transactions, but if offered in the future,
these features would be important to
capture.
There are a number of proposed fields
regarding date and tenor information.
The agreement timestamp is the date
and time on which a covered
transaction was agreed to. This field is
critical for differentiating same-day-start
trades from forward-settling trades. The
information is essential to
understanding how a transaction is
priced and determining whether the
transaction should be included in an
PO 00000
Frm 00011
Fmt 4702
Sfmt 4702
alternative reference rate. The start date
is the date on which a settlement
obligation related to the exchange of
cash and securities for a covered
transaction first exists. The match
timestamp refers to the time and date on
which the covered transaction is
matched by the covered reporter. The
end date refers to the date on which the
cash providers and securities providers
to the covered transaction are obliged to
return the cash and securities.
For an open trade, no end date is to
be specified, and the optionality field
must indicate that the transaction has an
open maturity. The minimum maturity
field in this case must be used to
indicate the next date that the interest
rate is to be reset.
For repos with optionality, the end
date for a transaction must continue to
be specified as the date that the
transaction would terminate if no option
were exercised. The optionality field
indicates how the maturity of a
transaction can be changed after initial
agreement. Minimum maturity in this
case refers to the earliest possible date
on which the parties could be obliged to
return the cash and securities, taking
optionality into account.
Observation days consist of all days
on which a covered reporter accepts and
processes covered transactions. For
every observation day, covered reporters
are required to submit a file of all
outstanding transactions to the Office’s
collection agent by 6:00 a.m. Eastern
time the following business day.
iv. Trade Size and Rate
The principal amount in the centrally
cleared general collateral trades
schedule is the amount of cash
borrowed or lent. This schedule also
requires information on the agreed-upon
rate for the trade, which is the interest
rate at which the cash provider agrees
to lend to the securities provider. This
rate must be expressed as the
annualized rate based on an actual/360day count.
The securities quantity field in the
general collateral net exposure schedule
for the general collateral repo collection
and the specific-security trades
schedule is defined as the principal
amount or par value of the securities
pledged in a repo transaction.
The specific-security trades schedule
includes four fields on the exchange of
cash in these repo transactions.
Information is required on the amount
of cash exchanged by the cash and
securities providers at the initiation and
close of the trade. This schedule also
requires information on the rates
reported by the cash and securities
providers.
E:\FR\FM\10JYP1.SGM
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
v. Price of Collateral/Security
The securities value field in the
general collateral net exposure schedule
requires the reporting of the market
value of the securities pledged,
inclusive of accrued interest. The
market value of securities is, in
combination with the identifier,
important for understanding how CCP
exposures are collateralized.
Questions:
13. Are the proposed reporting fields
generally appropriate? Do any
particular proposed reporting fields
raise specific questions or concerns?
14. Are there any additional fields not
currently being requested that the Office
should consider including in order to
better accomplish the Office’s or
Council’s goals presented in this
proposal?
15. The proposed regulatory text
contains definitions the Office believes
are necessary. Are these definitions
clear?
amozie on DSK3GDR082PROD with PROPOSALS1
c. Submission Process and
Implementation
The Office intends to require
submission through a collection agent.
The Office believes this approach will
decrease the costs of compliance for
covered reporters and allow data
reporting to commence sooner than
would otherwise be possible. The Office
expects that the Federal Reserve Board
will act as the Office’s collection agent,
with required data to be submitted
directly by covered reporters to the
FRBNY. The FRBNY will transmit
collected data to the Office.
Additionally, the Office expects the
FRBNY will have access to the reported
data for purposes of the daily SOFR and
BGCR rate production. To produce this
alternative reference rate calculation,
data on covered transactions must be
submitted by respondents to the FRBNY
no later than 6:00 a.m. Eastern time on
the business day following the
transaction. The submission process
will allow for the secure, automated
transmission of files. The Office expects
that the final rule will go into effect 60
days after its publication in the Federal
Register and is proposing that covered
reporters begin to comply with the final
rule 60 days after its effective date. The
Office believes this implementation
period will provide adequate time for
covered reporters to comply with the
proposed requirements.
Questions:
16. Would respondents incur
additional costs due to the requirement
for unique transaction identification? If
so, please provide estimates of those
costs.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
17. Does the proposed 60-day
compliance period for a central
counterparty that is a covered reporter
on the effective date of the rule provide
sufficient time to comply with the data
reporting requirements?
18. Does the two quarter phase in
period for a central counterparty that
becomes a covered reporter after the
effective date of the rule provide
sufficient time to comply with the data
reporting requirements?
19. Are there any additional costs
associated with data reporting as
contemplated by this proposed
collection? If so, please provide
estimates of those costs.
20. Would increasing the time period
between the effective date of a final rule
and the subsequent compliance date
substantially reduce burdens for
covered reporters or repo market
participants, or improve the quality of
the data reported under this proposed
collection? Are there any aspects of the
proposed collection that a phased-in
reporting requirement would be
particularly useful for?
21. What, if any, barriers to entry
could the requirements of this proposed
collection create for future CCPs for
repo?
VI. Administrative Law Matters
a. Paperwork Reduction Act
The collection of information
contained in this proposed collection
has been submitted to the Office of
Management and Budget (‘‘OMB’’) in
accordance with the Paperwork
Reduction Act of 1995 (‘‘PRA’’).84
Comments on the collection of
information should be sent to the Office
of Management and Budget, Attention:
Desk Officer for the Department of the
Treasury/Office of Financial Research,
Office of Information and Regulatory
Affairs, Washington, DC 20503 (or by
email to oirasubmission@omb.eop.gov),
with copies to the Office of Financial
Research at 717 14th Street NW,
Washington, DC 20220.
The proposed collection establishes
the permanent collection of certain
information on repo transactions and is
a ‘‘collection of information’’ pursuant
to the PRA. Any collection of
information addressed to all or a
substantial majority of an industry is
presumed to involve 10 or more covered
reporters.85 While the Office estimates
there is only one covered reporter, the
Office has undertaken a PRA analysis to
ensure that the proposed collection will
continue to be PRA compliant in the
PO 00000
84 44
85 5
U.S.C. 3501 et seq.
CFR 1320.3(c)(4)(ii).
Frm 00012
Fmt 4702
Sfmt 4702
31907
event additional central counterparties
become subject to the rule’s reporting
requirements. The Office is an
independent regulatory agency under
the PRA 86 and for purposes of OMB
review. In accordance with the
requirements of the PRA, the Office may
not conduct or sponsor, and a covered
reporter is not required to respond to, an
information collection unless it displays
a currently valid OMB control number.
The Office anticipates that this
proposed collection will require
submission by one covered reporter,
which will be required to make a
general collateral and specific-security
submission daily in accordance with the
tables in the proposed regulatory text.
The Office anticipates an annual burden
of 1,512 hours per covered reporter.
This figure is arrived at by estimating
the daily reporting time to be
approximately 3 hours for each general
collateral and specific-security
submission, multiplied by 2 to reflect
both types of submissions by the
covered reporter, and multiplying that
figure by an average of 252 business
days in a year, the typical number of
days per year that do not fall either on
weekends or on holidays widely
observed by the market.
To estimate hourly wages, the Office
used data from the May 2016 Bureau of
Labor Statistics Occupational
Employment Statistics for credit
intermediation and related activities
(NAICS 522000). For hourly
compensation, a figure of $75 per hour
was used, which is an average of the
90th percentile wages in seven different
categories of employment (compliance
officers, accountants and auditors,
lawyers, management occupations,
financial analysts, software developers,
and statisticians), plus an additional 32
percent to cover subsequent wage gains
and non-wage benefits, which yields an
estimate of $99 per hour.87 Using these
assumptions, the Office estimates the
recurring operational costs for general
collateral and specific-security
submissions to be $74,844 annually, for
a total estimated annual cost to the
covered reporter of $149,688.
Office Estimates Summary:
Title: Ongoing Data Collection of
Centrally Cleared Transactions in the
U.S.
86 44
U.S.C. 3502(5).
estimate includes an assumed additional 2
percent for subsequent wage gains from 2016 to
2017, and 30 percent for non-wage employee
benefits, according to the Bureau of Labor Statistics’
June 2017 Employer Costs for Employee
Compensation, https://www.bls.gov/news.release/
archives/ecec_09082017.htm.
87 The
E:\FR\FM\10JYP1.SGM
10JYP1
31908
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
amozie on DSK3GDR082PROD with PROPOSALS1
Repurchase Agreement Market
Office: Office of Financial Research.
Frequency of Response: Daily (12 CFR
1610.10(d)).
Affected Public: Businesses or other
for-profit.
Scope of Covered Reporters: Any
central counterparty, defined as a
clearing agency that interposes itself
between the counterparties to
transactions, whose average daily total
open commitments in repurchase
agreement contracts across all services
over the prior calendar quarter is at least
$50 billion. (12 CFR 1610.10(a), (b)(2)).
Number of Covered Reporters: One
covered reporter submitting information
on two clearing services.
Estimated Time Per Covered Reporter
Per Submission: 6 hours.
Number of Submissions:
Daily submission containing both
general collateral transactions (12 CFR
1610.10(c)(3), (4)) and specific security
trades (12 CFR 1610.10(c)(5)).
Anticipated Annual Submissions:
252.
Total Estimated Annual Burden:
1,512 hours.
In addition to recurring reporting
costs, the Office anticipates the covered
reporter will experience one-time initial
start-up costs to account for data
management systems and software,
operations, and alignment of reporting
schedules for ease of data transmission.
The estimate of these initial costs is
2,500 hours for the two general
collateral schedules, and 2,500 hours for
the specific-security schedule, per
covered reporter. Because the Office
anticipates one covered reporter
submitting both the general collateral
schedules and the specific-security
schedule, the estimated initial start-up
cost of required reporting for both
submissions is $495,000.
The Office invites comments on the
following: (a) Whether the proposed
collection of information is necessary
for the proper performance of the Office,
including whether the information
would have practical utility; (b) the
accuracy of the estimate of the burden
of the proposed collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information required to be maintained;
(d) ways to minimize the burden of the
required collection of information,
including through the use of automated
collection techniques or other forms of
information technology; and (e)
estimates of capital or start-up costs and
costs of operation, maintenance, and
purchase of services to report the
information.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
b. Regulatory Flexibility Act
Congress enacted the Regulatory
Flexibility Act (the ‘‘RFA’’) to address
concerns related to the effects of agency
rules on small entities.88 The Office is
sensitive to the impact its rules may
impose on small entities. The RFA
requires agencies either to provide an
initial regulatory flexibility analysis
with a proposed rule for which general
notice of proposed rulemaking is
required, or to certify that the proposed
rule will not have a significant
economic impact on a substantial
number of small entities.89 In
accordance with section 3(a) of the RFA,
the Office is certifying that this
proposed collection will not have a
significant economic impact on a
substantial number of small entities.
As discussed above, this proposed
collection will only apply to CCPs for
repos whose average daily total open
commitments in repo contracts across
all services over the prior calendar
quarter is at least $50 billion. Currently,
under this scope, this proposed
collection would apply only to one
entity, whose corporate parent’s total
consolidated assets were $39 billion as
of March 31, 2018.90 Reporting will be
required of additional central
counterparties beginning on the first
business day of the third calendar
quarter after the calendar quarter in
which such central counterparties meet
the $50 billion activity-based materiality
threshold. If a covered reporter ceases to
meet this threshold for at least four
consecutive calendar quarters, its
reporting obligations under this rule
would cease.
Under regulations issued by the Small
Business Administration, a ‘‘small
entity’’ includes those firms within the
‘‘Finance and Insurance’’ sector with
asset sizes that vary from $7.5 million
in assets to $550 million or less in
assets.91 For purposes of the RFA,
entities that are banks are considered
small entities if their assets are less than
or equal to $550 million. The size of the
activity-based threshold in this
proposed collection ensures that any
respondent will be well beyond these
small entity definitions.
Pursuant to the Regulatory Flexibility
Act, 5 U.S.C. 605(b), it is hereby
certified that this proposed collection
U.S.C. 601 et seq.
U.S.C. 603(a).
90 See DTCC, ‘‘DTCC Condensed Consolidated
Financial Statements as of March 31, 2018 and
December 31, 2017 and for the three months ended
March 31, 2018 and 2017,’’ https://www.dtcc.com/∼/
media/Files/Downloads/legal/financials/2018/
DTCC-Condensed-Consolidated-FinancialStatements-Q1-2018.pdf.
91 13 CFR 121.201.
PO 00000
88 5
89 5
Frm 00013
Fmt 4702
Sfmt 4702
will not have a significant economic
impact on a substantial number of small
entities.
c. Plain Language
The Office has sought to present this
proposed collection in a simple and
straightforward manner. The Office
invites comments on how to make this
proposal, the regulatory text, or the
reporting schedules easier to
understand. The Office specifically
invites comments on the following
questions:
22. Are the requirements in the
proposal clearly stated? If not, how
could the proposed rule be more clearly
stated?
23. Does the proposed rule contain
language or jargon that is not clear? If
so, which language requires
clarification?
24. Would a different format (e.g.,
groupings, ordering of sections, use of
headings, paragraphing) make the
proposed rule easier to understand? If
so, what changes to the format would
make the proposed rule easier to
understand?
List of Subjects in 12 CFR Part 1610
Confidential business information,
Economic statistics, Reference rates,
Repurchase agreements, Clearing,
Central counterparty, Data collection.
■ For the reasons stated in the preamble,
the Office of Financial Research
proposes to add 12 CFR Part 1610 as set
forth below:
PART 1610—REGULATORY DATA
COLLECTIONS
Subpart A—Collections Generally
Sec.
1610.1 General Authority
1610.2 General Definitions
1610.3 Treatment of Collected Information
1610.4–9 [Reserved]
Subpart B—Specific Collections
Sec.
1610.10 Centrally Cleared Repurchase
Agreement Data
Authority: 12 U.S.C. 5343 and 5344
Subpart A—Collections Generally
§ 1610.1
General Authority.
The collections under this part are
made pursuant to the authority
contained in 12 U.S.C. 5343(a) and (c)(1)
and 5344(b).
§ 1610.2
General Definitions.
Council means the Financial Stability
Oversight Council.
Legal Entity Identifier or LEI for an
entity shall mean the global legal entity
identifier maintained for such entity by
E:\FR\FM\10JYP1.SGM
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
Clearing agency has the same
meaning as set forth in 15 U.S.C.
78c(a)(23).
Covered reporter means any central
counterparty for repurchase agreement
transactions that meets the criteria set
forth in Paragraph (b)(2); provided,
however, that any covered reporter shall
cease to be a covered reporter only if it
does not meet the dollar threshold
specified in Paragraph (b)(2) for at least
four consecutive calendar quarters.
General collateral trade means a
repurchase agreement transaction in
which the trade reported to the central
counterparty is for a category of
securities as opposed to a specific
security.
Repurchase agreement transaction
means an agreement of a counterparty to
transfer securities to another
counterparty in exchange for the receipt
of cash, and the simultaneous agreement
of the former counterparty to later
reacquire the same securities (or any
subsequently substituted securities)
from that same counterparty in
exchange for the payment of cash; or an
agreement of a counterparty to acquire
securities from another counterparty in
exchange for the payment of cash, and
the simultaneous agreement of the
former party to later transfer back the
same securities (or any subsequently
substituted securities) to the latter
counterparty in exchange for the receipt
of cash.
Specific-security trade means a
repurchase agreement transaction where
the trade as reported to the central
counterparty is for a mutually agreed
upon specific security.
a utility accredited by the Global LEI
Foundation or by a utility endorsed by
the Regulatory Oversight Committee
that satisfies the standards implemented
by the Global LEI Foundation. As used
in this definition:
(1) Regulatory Oversight Committee
means the Regulatory Oversight
Committee (of the Global LEI System),
whose charter was set forth by the
Finance Ministers and Central Bank
Governors of the Group of Twenty and
the Financial Stability Board, or any
successor thereof; and
(2) Global LEI Foundation means the
not-for-profit organization organized
under Swiss law by the Financial
Stability Board in 2014, or any
successor thereof.
Office means the U.S. Department of
the Treasury’s Office of Financial
Research.
§ 1610.3 Treatment of Collected
Information.
The Office will treat any financial
transaction data or position data
submitted to the Data Center under this
part in accordance with the relevant
provisions of law, including 12 U.S.C.
5343(b) and 5344(b).
§ 1610.4–9
[Reserved]
Subpart B—Specific Collections
§ 1610.10 Centrally-Cleared Repurchase
Agreement Data.
(a) Definitions.
Central counterparty means a clearing
agency that interposes itself between the
counterparties to transactions, acting
functionally as the buyer to every seller
and the seller to every buyer.
31909
(b) Purpose and Scope. (1) Purpose:
The purpose of this data collection is to
require the reporting of certain
information to the Office about
repurchase agreement transactions
cleared through a central counterparty.
The information will be used by the
Office to support the Council and
member agencies by facilitating
financial stability monitoring including
research consistent with support of the
Council and its member agencies and
for the publication of alternative
reference rates.
(2) Scope of Application: Reporting
under this Section is required by any
central counterparty for repurchase
agreement transactions whose average
daily total open commitments in
repurchase agreement contracts (gross
cash positions prior to netting) across all
services over all business days during
the prior calendar quarter is at least $50
billion.
(c) Data Required. (1) Covered
reporters shall report trade and
collateral information on all repurchase
agreement transactions, subject to
Paragraph (c)(2), in accordance with the
prescribed reporting format in this
section.
(2) Covered reporters shall only report
trade and collateral information with
respect to any repurchase agreement
transaction for which there is a current
or future delivery obligation as of the
file observation date, including forwardstarting transactions.
(3) Covered reporters shall submit the
following data elements for all general
collateral transactions:
TABLE 1—GENERAL COLLATERAL TRADES
Data element
Explanation
File Observation Date .........................................
The observation date of the file (typically one business day before the day the file is submitted).
The Legal Entity Identifier of the covered reporter.
Respondent-generated unique transaction identifier.
Time that trade is first submitted to clearing service.
Time that trade is matched by clearing service.
Asset class identifier.
Type of securities identifier used.
The Legal Entity Identifier of the cash provider.
The Legal Entity Identifier of the direct clearing member through which the cash provider
accessed the clearing service.
The Legal Entity Identifier of the securities provider.
The Legal Entity Identifier of the direct clearing member through which the securities provider
accessed the clearing service.
The Legal Entity Identifier of the broker.
The start date of the repurchase agreement.
The date the repurchase agreement matures.
The repurchase agreement rate, expressed as an annual percentage rate on an actual/360day basis.
The amount of cash borrowed or lent.
The type of optionality, if any, in the repurchase agreement.
The earliest possible date on which the transaction could end in accordance with its contractual terms (taking into account optionality).
Covered Reporter LEI .........................................
Transaction ID ....................................................
Submission Timestamp ......................................
Match Timestamp ...............................................
Securities Asset Class Identifier .........................
Securities Asset Class Identifier Type ................
Cash Provider LEI ..............................................
Cash Provider Direct Clearing Member LEI .......
amozie on DSK3GDR082PROD with PROPOSALS1
Securities Provider LEI .......................................
Securities Provider Direct Clearing Member LEI
Broker LEI ...........................................................
Start Date ............................................................
End Date .............................................................
Rate ....................................................................
Principal ..............................................................
Optionality ...........................................................
Minimum Maturity ...............................................
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
PO 00000
Frm 00014
Fmt 4702
Sfmt 4702
E:\FR\FM\10JYP1.SGM
10JYP1
31910
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
(4) Covered reporters shall submit the
following data elements on the
collateral delivered against net general
collateral exposures for all general
collateral transactions:
TABLE 2—GENERAL COLLATERAL NET EXPOSURE
Data element
Explanation
File Observation Date .........................................
The observation date of the file (typically one business day before the day the file is submitted).
The Legal Entity Identifier of the covered reporter.
The Legal Entity Identifier of the direct clearing member of the clearing service.
Indicates the side of the transaction: collateral was received by or delivered from the covered
reporter.
Identifier of securities transferred.
Type of securities identifier used.
Par value or quantity (as applicable) of securities transferred.
The market value as of most recent valuation of securities transferred, including accrued interest.
Covered Reporter LEI .........................................
Direct Clearing Member LEI ...............................
Transaction Side .................................................
Securities
Securities
Securities
Securities
Identifier .............................................
Identifier Type ....................................
Quantity ..............................................
Value ..................................................
(5) Covered reporters shall submit the
following data elements for all specificsecurity trades:
TABLE 3—SPECIFIC-SECURITY TRADES
Data element
Explanation
File Observation Date .........................................
The observation date of the file (typically one business day before the day the file is submitted).
The Legal Entity Identifier of the covered reporter.
Respondent-generated unique transaction identifier.
The Legal Entity Identifier of the cash provider.
The Legal Entity Identifier of the direct clearing member through which the cash provider
accessed the clearing service.
The Legal Entity Identifier of the securities provider.
The Legal Entity Identifier of the direct clearing member through which the securities provider
accessed the clearing service.
The Legal Entity Identifier of the broker.
Time that trade is first submitted to clearing service.
Time that trade is matched by clearing service.
The start date of the repurchase agreement.
The date when the repurchase agreement matures; the close leg settlement date.
The type of optionality, if any.
The earliest possible date on which the transaction could end in accordance with its contractual terms (taking into account optionality).
Identifier of pledged security.
Type of securities identifier used.
Par value or quantity (as applicable) of securities transferred.
Asset class identifier or no substitution.
Type of securities identifier used.
The amount of cash transferred by the cash provider on the open leg of the transaction.
The amount of cash received by the securities provider on the open leg of the transaction.
The rate of interest received by the cash provider, expressed as an annual percentage rate on
an actual/360-day basis.
The rate of interest paid by the securities provider, expressed as an annual percentage rate
on an actual/360-day basis.
The amount of cash received by the cash provider on the close leg of the transaction.
The amount of cash paid by the securities provider on the close leg of the transaction.
Covered Reporter LEI .........................................
Transaction ID ....................................................
Cash Provider LEI ..............................................
Cash Provider Direct Clearing Member LEI .......
Securities Provider LEI .......................................
Securities Provider Direct Clearing Member LEI
Broker LEI ...........................................................
Submission Timestamp ......................................
Match Timestamp ...............................................
Start Date ............................................................
End Date .............................................................
Optionality ...........................................................
Minimum Maturity ...............................................
Security Identifier ................................................
Securities Identifier Type ....................................
Securities Quantity ..............................................
Substitution Collateral Identifier ..........................
Substitution Collateral Identifier Type .................
Cash Provider Start Leg Amount .......................
Securities Provider Start Leg Amount ................
Cash Provider Rate ............................................
Securities Provider Rate .....................................
amozie on DSK3GDR082PROD with PROPOSALS1
Cash Provider Close Leg Settlement Amount ...
Securities Provider Close Leg Settlement
Amount.
(d) Reporting Process and Collection
Agent. The Office may designate a
collection agent for the data reporting.
Covered reporters shall submit the
required data for the previous business
day by 6:00 a.m. Eastern time on the
following business day.
(e) Compliance. (1) Any central
counterparty that is a covered reporter
as of the effective date of this Section
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
shall comply with the reporting
requirements pursuant to this Section
60 days after the effective date of this
Section. Any such covered reporter’s
first submission shall be submitted on
the first business day after such
compliance date.1
1 For example, if this Section becomes effective
on March 15, a central counterparty that meets the
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
(2) Any central counterparty that
becomes a covered reporter after the
effective date of this Section shall
comply with the reporting requirements
pursuant to this Section on the first
dollar threshold specified in Paragraph (b)(2) for the
calendar quarter ending the previous December 31
will be required to submit its first report on the first
business day after May 14.
E:\FR\FM\10JYP1.SGM
10JYP1
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules
business day of the third calendar
quarter following the calendar quarter in
which such central counterparty meets
the dollar threshold specified in
Paragraph (b)(2).2
Kenneth J. Phelan,
Acting Director, Office of Financial Research.
[FR Doc. 2018–14706 Filed 7–9–18; 8:45 am]
BILLING CODE 4810–25–P–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2018–0589; Product
Identifier 2018–NM–021–AD]
RIN 2120–AA64
Airworthiness Directives; Airbus SAS
Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
We propose to adopt a new
airworthiness directive (AD) for certain
Airbus SAS Model A318 and A319
series airplanes; Model A320–211, –212,
–214, –231, –232, and –233 airplanes;
and Model A321–111, –112, –131, –211,
–212, –213, –231, and –232 airplanes.
This proposed AD was prompted by
reports of false resolution advisories
(RAs) from certain traffic collision
avoidance systems (TCASs). This
proposed AD would require
modification or replacement of certain
TCAS processors. We are proposing this
AD to address the unsafe condition on
these products.
DATES: We must receive comments on
this proposed AD by August 24, 2018.
ADDRESSES: You may send comments,
using the procedures found in 14 CFR
11.43 and 11.45, by any of the following
methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: 202–493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE,
Washington, DC 20590.
amozie on DSK3GDR082PROD with PROPOSALS1
SUMMARY:
2 For example, a central counterparty that meets
the dollar threshold specified in Paragraph (b)(2) in
a calendar quarter ending March 31 will become a
covered reporter subject to the reporting
requirements pursuant to this Section on the
following October 1 and will be required to submit
its first report on that date.
VerDate Sep<11>2014
17:14 Jul 09, 2018
Jkt 244001
• Hand Delivery: Deliver to Mail
address above between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
For service information identified in
this NPRM, contact Honeywell
Aerospace, Technical Publications and
Distribution, M/S 2101–201, P.O. Box
52170, Phoenix, AZ 85072–2170; phone:
602–365–5535; fax: 602–365–5577;
internet: https://www.honeywell.com.
You may view this service information
at the FAA, Transport Standards
Branch, 2200 South 216th St., Des
Moines, WA. For information on the
availability of this material at the FAA,
call 206–231–3195.
Examining the AD Docket
You may examine the AD docket on
the internet at https://
www.regulations.gov by searching for
and locating Docket No. FAA–2018–
0589; or in person at the Docket
Management Facility between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this NPRM, the regulatory
evaluation, any comments received, and
other information. The street address for
the Docket Operations office (telephone
800–647–5527) is in the ADDRESSES
section. Comments will be available in
the AD docket shortly after receipt.
FOR FURTHER INFORMATION CONTACT:
Steven Dzierzynski, Aerospace
Engineer, Avionics and Administrative
Services Section, FAA, New York ACO
Branch, 1600 Stewart Avenue, Suite
410, Westbury, NY 11590; telephone
516–228–7367; fax 516–794–5531.
SUPPLEMENTARY INFORMATION:
Comments Invited
We invite you to send any written
relevant data, views, or arguments about
this proposal. Send your comments to
an address listed under the ADDRESSES
section. Include ‘‘Docket No. FAA–
2018–0589; Product Identifier 2018–
NM–021–AD’’ at the beginning of your
comments. We specifically invite
comments on the overall regulatory,
economic, environmental, and energy
aspects of this NPRM. We will consider
all comments received by the closing
date and may amend this NPRM based
on those comments.
We will post all comments we
receive, without change, to https://
www.regulations.gov, including any
personal information you provide. We
will also post a report summarizing each
substantive verbal contact we receive
about this NPRM.
Discussion
The European Aviation Safety Agency
(EASA), which is the Technical Agent
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
31911
for the Member States of the European
Union, has issued EASA AD 2017–0196,
dated October 5, 2017 (referred to after
this as the Mandatory Continuing
Airworthiness Information, or ‘‘the
MCAI’’), to correct an unsafe condition
for certain Airbus SAS Model A318 and
A319 series airplanes; Model A320–211,
–212, –214, –231, –232, and –233
airplanes; and Model A321–111, –112,
–131, –211, –212, –213, –231, and –232
airplanes. The MCAI states:
Since 2012, a number of false TCAS
resolution advisories (RA) have been
reported by various European Air Navigation
Service Providers. EASA has published
certification guidance material for collision
avoidance systems (AMC 20–15) which
defines a false TCAS RA as an RA that is
issued, but the RA condition does not exist.
It is possible that more false (or spurious) RA
events have occurred, but were not recorded
or reported. The known events were mainly
occurring on Airbus single-aisle (A320
family) aeroplanes, although several events
have also occurred on Airbus A330
aeroplanes. Investigation determined that the
false RAs are caused on aeroplanes with a
Honeywell TPA–100B TCAS processor
installed, P/N [part number] 940–0351–001.
This was caused by a combination of three
factors: (1) Hybrid surveillance enabled; (2)
processor connected to a hybrid GPS [global
positioning system] source, without a direct
connection to a GPS source; and (3) an
encounter with an intruder aeroplane with
noisy (jumping) ADS–B Out position.
EASA previously published Safety
Information Bulletin (SIB) 2014–33 to inform
owners and operators of affected aeroplanes
about this safety concern. At that time, the
false RAs were not considered an unsafe
condition. Since the SIB was issued, further
events have been reported, involving a third
aeroplane.
This condition, if not corrected, could lead
to a loss of separation with other aeroplanes,
possibly resulting in a mid-air collision.
Prompted by these latest findings, and after
review of the available information, EASA
reassessed the severity and rate of occurrence
of false RAs and has decided that mandatory
action must be taken to reduce the rate of
occurrence, and the risk of loss of separation
with other aeroplanes. Honeywell
International Inc. published Service Bulletin
(SB) 940–0351–34–0005 [Publication Number
D201611000002] to provide instructions for
an upgrade, introducing software version 05/
01, changing the processor unit to P/N 940–
0351–005.
EASA previously issued AD 2017–0091
(later revised) to address the unsafe condition
on aeroplanes that had the P/N 940–0351–
001 processor installed by Airbus major
change or SB. However, part of the fleet had
the same P/N installed by STC [supplemental
type certificate]. The relevant STC approval
holders (see section Remarks of this [EASA]
AD for contact details) have been notified
and modification instructions (see section
Ref. Publications of this [EASA] AD) can be
obtained from those companies.
For the reason described above, this
[EASA] AD requires modification or
E:\FR\FM\10JYP1.SGM
10JYP1
]]>Agencies
- DEPARTMENT OF THE TREASURY
- Office of Financial Research
[Federal Register Volume 83, Number 132 (Tuesday, July 10, 2018)]
[Proposed Rules]
[Pages 31896-31911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14706]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 /
Proposed Rules
[[Page 31896]]
DEPARTMENT OF THE TREASURY
Office of Financial Research
12 CFR Part 1610
RIN 1505-AC58
Ongoing Data Collection of Centrally Cleared Transactions in the
U.S. Repurchase Agreement Market
AGENCY: Office of Financial Research, Treasury.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Department of the Treasury's Office of Financial
Research (the ``Office'') is requesting comment on a proposed rule
establishing a data collection covering centrally cleared transactions
in the U.S. repurchase agreement market. This proposed collection will
require daily reporting to the Office by covered central
counterparties. The Office expects that the Board of Governors of the
Federal Reserve System will act as the Office's collection agent, with
required data to be submitted directly to the Federal Reserve Bank of
New York. The collected data will be used to support the Financial
Stability Oversight Council and as inputs to reference rates.
DATES: Comments must be received by September 10, 2018.
ADDRESSES: You may submit comments, identified by [RIN 1505-AC58], by
any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Matthew Reed, Chief Counsel, or Patrick Bittner,
Senior Counsel, Office of the Chief Counsel, Office of Financial
Research, 717 14th Street NW, Washington, DC 20220.
Instructions: All submissions received must include the agency name
and RIN 1505-AC58 for this rulemaking. Because paper mail in the
Washington, DC, area may be subject to delay, it is recommended that
comments be submitted electronically. In general, all comments received
will be posted without change to https://www.regulations.gov, including
any personal information provided.
For access to the docket to read background documents or comments
received, go to https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Patrick Bittner, Senior Counsel, (202)
927-0035, [email protected]; Matthew McCormick, Research
Economist, (202) 927-8215, [email protected].
SUPPLEMENTARY INFORMATION:
I. Executive Summary
II. Repurchase Agreement Market Background
a. Importance of Repurchase Agreement Markets and Associated
Vulnerabilities
i. Low-Risk Option for Cash Investment/Deposit Substitute
ii. Monetizing Liquid Assets
iii. Transformation of Collateral
iv. Facilitating Hedging
v. Supporting Secondary Market Efficiency and Liquidity
b. Structure of the U.S. Repurchase Agreement Market
c. Data Available on U.S. Repurchase Agreement Activity
i. Tri-Party Repurchase Agreements
ii. Centrally Cleared General Collateral Repurchase Agreements
iii. Centrally Cleared Specific-Security Repurchase Agreements
iv. Uncleared Bilateral Repurchase Agreements
III. Alternative Reference Rate Background
IV. Justification for Proposed Collection
a. Collection of Centrally Cleared Repurchase Agreement Data
i. Importance of Centrally Cleared Repurchase Agreement Data for
Monitoring Financial Stability Risks
ii. Importance of Centrally Cleared Repurchase Agreement Data to
Alternative Reference Rates
b. Uses of the Data Collection
c. Legal Authority
V. Collection Design
a. Scope of Application
b. Information Required
i. Legal Entity Identifier Usage
ii. Transaction Information
iii. Date and Tenor Information
iv. Trade Size and Rate
v. Price of Collateral/Security
c. Submission Process and Implementation
VI. Administrative Law Matters
a. Paperwork Reduction Act
b. Regulatory Flexibility Act
c. Plain Language
I. Executive Summary
The Office of Financial Research (``Office'') is requesting comment
on a proposed rule establishing a data collection covering centrally
cleared transactions in the U.S. repurchase agreement market
(``proposed collection''). This proposed collection will require
reporting by certain U.S. central counterparties (``CCPs'') for
repurchase agreement (``repo'') transactions. This proposed collection
will serve two primary purposes: (1) Enhance the ability of the
Financial Stability Oversight Council (``Council'') and the Office to
identify and monitor risks to financial stability; and (2) support the
calculation of certain reference rates. Under the Dodd-Frank Wall
Street Reform and Consumer Protection Act (``Dodd-Frank Act''), the
Office is authorized to issue rules and regulations in order to collect
and standardize data to support the Council in fulfilling its duties
and purposes, such as identifying risks to U.S. financial stability.
The Council recommended a permanent collection of repo data in its 2016
annual report to Congress and, as required by law, the Office consulted
with the Council on the schedule of collection in September 2016.\1\
The Council maintained this recommendation in its 2017 annual report.
This proposed collection will require reporting on centrally cleared
repo transactions, which comprise approximately one-quarter of all repo
market transactions, marking an important step toward fully addressing
the Council recommendation.
---------------------------------------------------------------------------
\1\ See Minutes of the Financial Stability Oversight Council
(September 22, 2016), https://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/September222016_minutes.pdf and 12 U.S.C.
Sec. 5344(b)(1)(B)(iii).
---------------------------------------------------------------------------
The expanded monitoring of the repo market made possible by this
proposed collection appropriately helps fulfill the Council's duties
and purposes because of this market's crucial role in providing short-
term funding and performing other functions for U.S. markets, making it
important for financial stability monitoring. The data will also
support the calculation of the Secured Overnight Funding Rate
(``SOFR''), which was selected by the Alternative Reference Rates
Committee (``ARRC'') as its preferred alternative rate to U.S. dollar
London Interbank Offered Rate (``LIBOR''), as well as the Broad General
Collateral Rate (``BGCR''), helping fulfill
[[Page 31897]]
another Council recommendation on the creation of alternative reference
rates.\2\
---------------------------------------------------------------------------
\2\ See Financial Stability Oversight Council, 2014 Annual
Report, p. 10; 2015 Annual Report, p. 17; 2016 Annual Report, pp.
14-15; and 2017 Annual Report, pp. 12-13, https://www.treasury.gov/initiatives/fsoc/studies-reports/Pages/2017-Annual-Report.aspx.
---------------------------------------------------------------------------
II. Repurchase Agreement Market Background
A repo transaction is the sale of assets, combined with an
agreement to repurchase the assets on a specified future date at a
prearranged price. Repos are commonly used as a form of secured
borrowing. The assets underlying the repo are used as collateral to
protect the cash provider against the risk that the securities provider
fails to repurchase the assets underlying the repurchase agreement.
Market participants use repos for many reasons, such as using cash as
collateral to borrow securities and to finance securities holdings.
Central banks also use repos as an important monetary policy tool.\3\
The interest rate on repo borrowing is calculated from the difference
between the sale price and the repurchase price of the assets
underlying the repo.
---------------------------------------------------------------------------
\3\ See Lorie K. Logan, Federal Reserve Bank of New York,
``Operational Perspectives on Monetary Policy Implementation: Panel
Remarks on `The Future of the Central Bank Balance Sheet' '' (2018),
https://www.newyorkfed.org/newsevents/speeches/2018/log180504.
---------------------------------------------------------------------------
To protect the cash provider against a decline in the value of the
securities subject to repurchase, cash providers typically require
over-collateralization from borrowers. In an uncleared bilateral repo,
the value of the securities pledged as collateral is discounted, which
is referred to as a haircut. In a centrally cleared repo,
overcollateralization is accomplished via initial margin. If the market
value of the collateral falls during the life of the repo, the cash
provider or, if cleared, the clearing firm, has the right to call on
its counterparty to deliver additional collateral, known as variation
margin, so that the loan remains over-collateralized against future
adverse price movements.
Repo transaction documentation specifies the terms, including the
types of securities that are acceptable to the cash provider as
collateral, and the associated haircuts or initial margin requirements.
Repos can be entered into with a range of fixed maturities, though
repos are often overnight transactions. For term repos, repo rates can
be negotiated on either a fixed or on a floating basis. There are also
open tenor repos that do not have a fixed maturity and are instead
renewed by mutual agreement.
a. Importance of Repurchase Agreement Markets and Associated
Vulnerabilities
A stable and well-functioning repo market is critical to U.S.
financial markets and the U.S. economy, and thus U.S. financial
stability. The repo market is the largest short-term wholesale funding
market in the United States. In 2008-09, runs on repos contributed to
the financial crisis and helped lead to official sector
intervention.\4\ The repo market is important to facilitating the flow
of cash and securities through the financial system. There are four
functions that repo transactions can serve for individual participants:
Low-risk cash investment, monetization of assets, transformation of
collateral, and facilitation of hedging.\5\ Repos also benefit
financial markets broadly by supporting secondary market efficiency and
liquidity.\6\ These functions are described in the following paragraphs
to provide a framework for understanding activity in the repo market
and the associated vulnerabilities, and the need for the information
this proposed collection will provide. Understanding the benefits and
vulnerabilities of the repo market as a whole is important both in
demonstrating the need for this proposed collection and determining
which data elements are appropriate for inclusion.
---------------------------------------------------------------------------
\4\ See Gary Gorton and Andrew Metrick, ``Securitized Banking
and the Run on Repo,'' Journal of Financial Economics (June 2012),
pp, p. 425-451.
\5\ See Bank for International Settlements, study group report,
Repo Market Functioning (April 2017), https://www.bis.org/publ/cgfs59.htm.
\6\ See Bank for International Settlements (April 2017).
---------------------------------------------------------------------------
i. Low-Risk Option for Cash Investment; Deposit Substitute
One of the functions repos offer is an alternative to insured
deposits that provides similar, though less, liquidity and security.
Financial market participants desire low-risk, money-like claims in
order to meet demand for access to cash. Money and money-like claims
can take a number of forms, including deposits and money market mutual
fund investments. Because deposit insurance is capped in the United
States, institutions seek repos backed by high-quality assets to place
excess cash over the deposit insurance limit. The securities provided
in the trade protect the cash provider against counterparty credit
risk, while use of overcollateralization provides protection against
market risk.\7\ In general, higher-quality collateral and larger
haircuts reduce the risk to the cash provider.
---------------------------------------------------------------------------
\7\ Repos are generally subject to an exemption from the
automatic stay in bankruptcy, meaning that if a cash provider's
counterparty were to default, the cash provider could liquidate the
collateral, recovering its value. 11 U.S.C. 559. In 2017, the Board
of Governors of the Federal Reserve System and Federal Deposit
Insurance Corporation adopted a final rule requiring U.S. global
systemically important banks (G-SIBs) and their subsidiaries to
amend their repo contracts to temporarily stay the exercise of
default rights caused by the bankruptcy of an affiliate. See 82 FR
42882 (September 12, 2017).
---------------------------------------------------------------------------
Repo markets can become less effective in providing deposit
substitutes in times of market stress.\8\ In certain circumstances,
although repo claims are secured, they may still lose favor as
collateral values drop or counterparty risk increases. This risk was
realized for Bear Stearns in 2008, when a run on Bear Stearns' funding
spread to its repo borrowing against high-quality collateral.\9\ This
example demonstrates that even repos backed by high-quality collateral
can become sensitive to counterparty risk, potentially resulting in a
run on the institution's funding.
---------------------------------------------------------------------------
\8\ For example, greater demand for high-quality assets makes
them more difficult to procure, which can lead to failures to return
the repo collateral. This phenomenon can become self-perpetuating,
as when failures rise, market participants become less likely to
lend securities to avoid the possibility that they may not get them
back. This further reduces the supply of securities, exacerbating
the situation. As a result, an initial shock to asset markets that
reduces the supply of acceptable alternatives to cash providers can
be amplified through repo market dynamics, further reducing firms'
options for deposit substitutes due to rising transaction fails.
\9\ The maturity of Bear Stearns' repo funding deteriorated over
several months before the firm experienced a run that first occurred
on its bilateral repos secured by lower-quality assets, and then
spread to its repos backed by U.S. Treasury securities. A similar
dynamic occurred at a major European bank during the crisis, where
the institution's bilateral repos backed by government securities
dried up and only repos that were centrally cleared remained
available to the firm. See Bank for International Settlements,
Liqudity Stress Testing: A Survey of Theory, Empirics and Current
Industry and Supervisory Practices (October 2013), https://www.bis.org/publ/bcbs_wp24.htm.
---------------------------------------------------------------------------
ii. Monetizing Liquid Assets
Just as repos offer cash providers a deposit substitute, they allow
cash borrowers to obtain funding in a cost-efficient manner. The
monetization of assets achieved via repos offers a source of liquidity
to firms that hold securities in inventory. For this reason, repos play
an important role in the government securities market, as dealers often
use repos to fund their purchases of Treasury securities at auction.
The ability to monetize assets enables firms to engage in maturity
transformation, in which a firm funds long-term assets using short-term
liabilities. For example, a firm can borrow cash in the repo market
with overnight maturity, using the cash
[[Page 31898]]
received to fund its holdings of long-term assets, which it provides as
collateral. While maturity transformation is an essential function of
the financial system, the asset-liability maturity mismatch gives rise
to rollover risk.
As a result of the maturity mismatch that can arise from the
monetization of liquid assets, this function, while a benefit of repos,
is also a potential source of fragility. When the repo market is
impaired, the ability of securities providers to borrow against their
portfolios can be reduced.\10\ An example of this dynamic occurred in
2007, when haircuts on repos backed by private-label mortgage-backed
securities (``MBS'') began to rise as a result of doubts about the
value of the underlying collateral. As haircuts rose, leveraged firms
were forced to sell difficult-to-value assets, often to buyers that
were even less able to value the assets. Those buyers required steeper
discounts as a result, creating strong fire sale dynamics that further
undermined the value of private-label MBS.\11\ These runs passed
through from dealers to leveraged funds, increasing the likelihood that
those funds would be forced to dispose of assets in a fire sale,
further reinforcing the fire sale dynamics.\12\
---------------------------------------------------------------------------
\10\ This can occur when some securities become information-
sensitive. Because cash providers seek to avoid gathering costly
information about the quality of individual securities, increases in
uncertainty as to the value of securities cause them to increase
asset class-level haircuts in an attempt to recover their
information-insensitivity. This reduces the ability of securities
providers to borrow in repo against their portfolios. See Gary
Gorton and Guillermo Ordo[ntilde]ez, ``Collateral Crises,'' American
Economic Review, Vol. 104, no. 2 (February 2014), https://www.aeaweb.org/articles?id=10.1257/aer.104.2.343.
\11\ See Gary B. Gorton, ``Information, Liquidity, and the
(Ongoing) Panic of 2007,'' NBER Working Paper no. 14649 (January
2009), https://www.nber.org/papers/w14649.
\12\ See Rajkamal Iyer and Marco Macchiavelli, ``Primary
Dealers' Behavior During the 2007-08 Crisis: Part II, Intermediation
and Deleveraging,'' FEDS Notes (June 28, 2017), https://www.federalreserve.gov/econres/notes/feds-notes/primary-dealers-behavior-during-the-2007-08-crisis-part-II-intermediation-and-deleveraging-20170628.htm.
---------------------------------------------------------------------------
iii. Transformation of Collateral
Another function of repos is to exchange securities currently held
for other securities. This type of transaction allows firms to exchange
one asset for another asset, effecting a form of collateral
transformation. For example, a firm may want to temporarily exchange
lower-quality equity collateral for higher-quality Treasury securities
that can be posted as margin. This goal can be accomplished through a
pair of repo transactions in which the firm lends the equities in one
repo transaction and uses the cash proceeds to borrow Treasury
securities in a second repo transaction, effectively transforming the
quality of its assets.\13\
---------------------------------------------------------------------------
\13\ This approach is of particular importance to firms that
hold lower-quality assets and engage in trades in, for example,
derivatives, where higher-quality assets are required for margining.
---------------------------------------------------------------------------
Because high-quality collateral can become scarce in times of
stress, risks can increase for leveraged firms that rely on repos to
obtain margin-eligible securities. Potential difficulties in obtaining
high-quality collateral during large market movements that trigger
margin increases illustrate how collateral transformation transactions
can compound risks. For leveraged firms that engage in strategies in
both cash and derivatives markets, the inability to obtain collateral
to post margin could undermine their ability to maintain a hedged
position, and could force a disorderly unwind. This use of repos can
therefore create linkages that can enable the propagation of shocks
through securities financing, derivatives, and securities markets.
iv. Facilitating Hedging
Repos can be used as a lower-cost way to hedge specific risks than
individually buying and selling assets. For example, by allowing
underwriters to borrow and short an issuer's outstanding securities,
repo markets let underwriters hedge the risk associated with holding
newly issued securities that they have underwritten but not yet placed.
This decreases the risk to underwriters and may reduce the cost to
issuers. The reduced capacity of the repo market to facilitate hedging
during periods of market stress can therefore make it more difficult
for firms to manage exposures and engage in financial intermediation.
v. Supporting Secondary Market Efficiency and Liquidity
This final function of repos refers to their potential benefits for
financial markets as a whole. Repo markets support secondary market
efficiency and liquidity in securities markets both by funding dealer
inventories and by helping dealers to source securities. Both allow
dealers to quote prices on a broader range of securities more readily,
thereby increasing asset market liquidity. Additionally, the ability of
market participants to use repos to obtain securities for short sales
improves pricing efficiency.
Repos allow dealers to quote prices more readily, improving market
liquidity in two ways. First, because the repo market helps dealers to
more effectively monetize assets on their balance sheet,\14\ dealers
are able to maintain larger inventories at a lower cost, which may
allow them to quote prices on (i.e., offer to sell) a larger volume or
wider array of securities. Second, by enabling dealers to borrow
securities on a short-term basis, repo markets allow dealers to quote
prices for securities they do not currently hold in inventory but know
they can access--a virtual inventory. Without repos, a dealer would
have to maintain larger inventories at increased capital costs to make
markets, adding to costs for the dealer and, by extension, issuers and
investors. Thus, repo markets are critical to dealer trading and
supporting market efficiency and liquidity.
---------------------------------------------------------------------------
\14\ See Section II.A.ii, Repurchase Agreement Background,
Monetizing Liquid Assets.
---------------------------------------------------------------------------
The secondary market efficiency and liquidity provided by repos
depend on a funding market with relatively stable collateral values.
Repos create a tight coupling between funding liquidity and market
liquidity. This can create a situation where a negative shock to the
value of assets in dealers' portfolios reduces their ability to fund
those portfolios. That reduces market liquidity, which can further
reduce dealers' ability to fund their portfolios. Market liquidity
provided by repos reinforces and is reinforced by the funding liquidity
available to traders. Shocks to either market liquidity or funding
liquidity can negatively affect both, potentially leading to liquidity
spirals.\15\ In extreme scenarios, liquidity spirals can manifest as
fire sales in which firms are forced to deleverage with no ready
buyers. That may cause prices to plummet below assets' fundamental
value, which, in turn, may force further deleveraging.
---------------------------------------------------------------------------
\15\ See Markus K. Brunnermeier and Lasse Heje Pedersen,
``Market Liquidity and Funding Liquidity,'' The Review of Financial
Studies, Vol. 22, no. 6 (June 2009), https://doi.org/10.1093/rfs/hhn098.
---------------------------------------------------------------------------
b. Structure of the U.S. Repurchase Agreement Market
In the United States, repos are often described as occurring in
either the tri-party or bilateral market. However, a more precise way
of describing the segments of the U.S. repo market is to distinguish
between transactions that are settled on the books of tri-party
custodian banks, and repos that are settled on a delivery-versus-
payment (``DVP'') basis. There are two market segments that rely on
tri-party custodian banks for settlement. First, there is a non-
centrally cleared segment, traditionally referred to as ``tri-party
repo.'' Second, there is a centrally cleared segment, consisting of the
[[Page 31899]]
General Collateral Financial Repurchase Agreement service (``GCF
Repo''), that provides trade matching and netting services on general
collateral repos. DVP transactions also occur in two segments:
Centrally cleared DVP repos; and uncleared DVP repos, typically
referred to as bilateral repos, which involve two parties contracting
directly without a central counterparty.
In tri-party repo, settlement occurs through a bank that provides
collateral valuation, margining, and management services. The
settlement bank provides back-office support to both parties in the
trade by settling the repo on its books and confirming the terms of the
repo, such as eligible collateral and haircuts, are met.\16\ Agreements
in tri-party repo are between specified counterparties and are made on
a general collateral basis. In general collateral transactions, cash
providers accept classes of securities at set haircuts rather than
specific securities.
---------------------------------------------------------------------------
\16\ Additionally, the settlement bank acts as custodian for the
securities held as collateral and allocates collateral to trades at
the close of the business day. This ensures that the party receiving
securities receives the correct asset class, value, and haircut,
while confirming that any newly posted collateral substituted during
the life of the transaction meets the cash provider's collateral
requirements.
---------------------------------------------------------------------------
In GCF Repo, qualified members of the Fixed Income Clearing
Corporation (``FICC'') Government Securities Division can trade repos
on a general collateral basis without revealing their identities to
counterparties. FICC, a subsidiary of the Depository Trust & Clearing
Corporation (``DTCC''), provides the GCF Repo service. GCF Repo-
eligible collateral consists of government and agency securities
eligible for settlement via Fedwire, the Federal Reserve's payment and
settlement system.\17\ FICC acts as a CCP for participating members.
Interposing a common counterparty for all transactions allows broker-
dealers to limit counterparty risk and provides netting benefits.
Transacting in GCF Repo is efficient because participants do not have
to assign collateral for each specific trade; instead, collateral held
at a tri-party clearing bank is allocated to net positions at the end
of the day. The elimination of trade-by-trade DVP delivery requirements
reduces participants' operational costs. The GCF Repo service recently
was expanded to include Centrally Cleared Institutional Triparty
(``CCIT''), a channel through which institutional counterparties (other
than investment companies registered under the Investment Company Act
of 1940, as amended \18\) can participate as cash providers in GCF Repo
on a specified counterparty basis. This new service may lead to a
tighter coupling between the GCF Repo and tri-party repo market
segments, because it enables tri-party lenders that previously could
not participate in the GCF repo market to lend directly to a cash
borrower in the GCF repo market.
---------------------------------------------------------------------------
\17\ See Paul Agueci, Leyla Alkan, Adam Copeland, Isaac Davis,
Antoine Martin, Kate Pingitore, Caroline Prugar, and Tyisha Rivas,
``A Primer on the GCF Repo[supreg] Service,'' Federal Reserve Bank
of New York Staff Reports no. 671 (2014), https://www.newyorkfed.org/research/staff_reports/sr671.html.
\18\ 15 U.S.C. 80a-1 et seq.
---------------------------------------------------------------------------
Outside the tri-party custodian banks, FICC operates the DVP
Service as an additional repo platform for qualified members of its
Government Securities Division.\19\ Through this platform, bilateral
repo transactions are novated to FICC, which then acts as a central
counterparty to the transactions.\20\ This platform provides settlement
netting for legs of repo transactions occurring after the initial date
of the agreement. Participants execute bilateral repos with other FICC
members and submit security-specific trades for matching, comparison,
and settlement. While some of these trades are negotiated on a general
collateral basis, their settlement occurs on a specific-security basis.
---------------------------------------------------------------------------
\19\ See David Bowman, Joshua Louria, Matthew McCormick, and
Mary-Frances Styczynski, ``The Cleared Bilateral Repo Market and
Proposed Repo Benchmark Rates,'' FEDS Notes (February 27, 2017),
https://doi.org/10.17016/2380-7172.1940.
\20\ Novation in this context refers to the process by which the
clearinghouse becomes the counterparty to both of the participants
to the transaction. Novation is the substitution or swap of two
parties in a contractual agreement., according to Black's Law
Dictionary (10th ed., 2014).
---------------------------------------------------------------------------
Finally, there are uncleared bilateral repos, in which
counterparties negotiate repo transactions directly with one another. A
firm engaging in uncleared bilateral repos must manage the collateral
flow, processing, settlement, valuation, and margining itself.
Analysis of data on primary dealer positions suggests that dealers
act as cash providers in $3.0 trillion of bilateral repos, including
those conducted through the DVP Service.\21\
---------------------------------------------------------------------------
\21\ See Viktoria Baklanova, Cecilia Caglio, Marco Cipriani, and
Adam Copeland, ``The U.S. Bilateral Repo Market: Lessons from a New
Survey,'' OFR Brief Series no. 16-01 (January 13, 2016), https://www.financialresearch.gov/briefs/files/OFRbr-2016-01_US-Bilateral-Repo-Market-Lessons-from-Survey.pdf.
---------------------------------------------------------------------------
c. Data Available on U.S. Repurchase Agreement Activity
While some members of the Council have access to certain data about
the repo market, the data are insufficient to draw a complete picture
of U.S. repo market activity and the associated vulnerabilities. As the
financial crisis demonstrated, high-quality information is one of the
best tools for identifying the build-up of risk. While improvements
have been made, a full picture of all segments of the U.S. repo market
is still largely unavailable. This proposed collection will cover
certain centrally cleared repo transactions, allowing the Office to
gather data on a mandatory basis on what it estimates to be
approximately one-quarter of the U.S. repo market.\22\ While this
proposed collection will not yet provide a full picture of the entire
U.S. repo market, when taken together with information collected about
other types of repos by other regulators, discussed below, this
proposed collection will enable access to transactional data on
approximately half of U.S. repo market activity.
---------------------------------------------------------------------------
\22\ As measured by U.S. dollar volume.
---------------------------------------------------------------------------
i. Tri-Party Repurchase Agreements
The Board of Governors of the Federal Reserve System (``Federal
Reserve Board''), through the Federal Reserve Bank of New York
(``FRBNY''), supervises the two tri-party custodian banks and, on a
mandatory basis pursuant to its supervisory authority, collects daily
data on transactions in these markets.\23\ The data include information
on: The interest rate; the counterparties; the collateral pledged; the
type of transaction; the transaction initiation date; the transaction
effective date; the transaction maturity date; whether the transaction
is open-ended; the value of the funds borrowed; whether the transaction
includes an option; and, if the transaction includes an option (e.g.,
the ability to extend or terminate early), the minimum notice period
required to exercise it.\24\ Additionally, the FRBNY makes some
aggregated data on tri-party repo publicly available. As of April 2018,
daily tri-party repo volumes totaled about $1.8 trillion.\25\
---------------------------------------------------------------------------
\23\ Bank of New York Mellon (``BNYM'') and JPMorgan Chase
(``JPMC'') currently serve as the two clearing banks in the tri-
party repo market. JPMC announced in July 2016 that it plans to exit
government securities settlement for broker-dealers by the end of
2018. After 2018, BNYM may become the sole clearing bank in the tri-
party repo market for Treasury securities. See Federal Reserve
Board, Request for Information Relating to Production of Rates, 82
FR 41259, 41260 (August 30, 2017).
\24\ See 82 FR 41259, 41260 (August 30, 2017).
\25\ See Federal Reserve Bank of New York, ``Tri-Party-GCF
Repo,'' undated online content, https://www.newyorkfed.org/data-and-statistics/data-visualization/tri-party-repo#interactive/volume/collateral_value.
---------------------------------------------------------------------------
ii. Centrally Cleared General Collateral Repurchase Agreements
A centrally cleared general collateral repo is a transaction that
is cleared by
[[Page 31900]]
a CCP where the settlement obligation is for an acceptable asset class
as opposed to a specific security. Currently, only FICC offers this
type of centrally cleared U.S. service, through its GCF Repo service.
While the FRBNY has entered into a voluntary agreement with an
affiliate of FICC, DTCC Solutions LLC (``DTCC Solutions''), to obtain
limited daily data regarding GCF Repo transactions,\26\ there is no
mandatory collection of detailed transaction data from GCF Repo. The
data set provided under the voluntary agreement includes: The interest
rate of the transaction; information on the collateral that may be
pledged in the transaction; the date the transaction is initiated; the
date the transaction becomes effective; the date the transaction
matures; the value of funds borrowed in the transaction; and an
indicator differentiating between repos and reverse repos in relation
to the CCP.\27\ Notably, the data submission to the FRBNY does not
include the identities of counterparties, although the FICC platform
collects this information as a consequence of its trade processing. As
of September 2017, daily GCF Repo volumes totaled about $400 billion on
a gross basis.\28\
---------------------------------------------------------------------------
\26\ See 82 FR 41259, 41260 (August 30, 2017).
\27\ Id.
\28\ See Federal Reserve Bank of New York, ``Tri-Party-GCF
Repo,'' undated online content, https://www.newyorkfed.org/data-and-statistics/data-visualization/tri-party-repo#interactive/tripartygcf.
---------------------------------------------------------------------------
iii. Centrally Cleared Specific-Security Repurchase Agreements
A centrally cleared specific-security repo is a transaction that is
cleared by a CCP where the settlement obligation is for a mutually
agreed upon specific security, such as a security identified by a
particular CUSIP or ISIN.\29\ In the United States, currently only FICC
offers this type of centrally cleared repo service through its DVP
Service, through which bilateral repo transactions become centrally
cleared. As is the case with existing centrally cleared general
collateral repo, there is no mandatory regulatory collection of data on
centrally cleared specific-security repo. Like GCF Repo, DTCC Solutions
also provides limited daily data on transactions under FICC's DVP
Service to the FRBNY under a voluntary agreement. The data include
information only on repos backed by U.S. Treasury securities. For each
trade, information is provided on the interest rate of the transaction;
the specific collateral that is pledged in the transaction; the date
the transaction is initiated; the value of funds borrowed in the
transaction; and a field indicating whether the CCP is lending cash or
securities.\30\ As with the GCF Repo service, FICC's DVP Service data
submission does not include counterparty information. FICC's DVP
Service is estimated to clear about $400 billion in same-day-start
overnight repos collateralized by Treasury securities alone.\31\
---------------------------------------------------------------------------
\29\ CUSIP is a nine-character alphanumeric code that identifies
a North American financial security for the purposes of facilitating
clearing and settlement of trades. The CUSIP system is owned by the
American Bankers Association and is operated by S&P Global Market
Intelligence. The International Securities Identification Number
(ISIN) is a 12-character alphanumeric code that serves for uniform
identification of a security through normalization of the assigned
National Number. CUSIP serves as the National Securities
Identification Number for products issued in the United States and
Canada.
\30\ See 82 FR 41259, 41261 (August 30, 2017).
\31\ See Bowman, Louria, McCormick, and Styczynski (February 27,
2017).
---------------------------------------------------------------------------
iv. Uncleared Bilateral Repurchase Agreements
Unlike the other three repo market segments, the wholly bilateral
nature of uncleared repo means there is no central source for
comprehensive data. To better understand the bilateral repo market,
determine the value of a potential data collection, and gain insights
into the design of such a collection, the Office and the Federal
Reserve, with input from the Securities and Exchange Commission
(``SEC''), conducted a pilot program collecting information on both
centrally cleared and uncleared bilateral repo transactions. The pilot
collection took place in 2015 and gathered data from a subset of U.S.-
based broker dealers. The results and lessons learned were published in
January 2016.\32\ While the pilot did not survey all market
participants, the paper summarizing the results of the pilot used data
from the Federal Reserve's FR 2004 report, which collects information
on market activity from primary dealers in U.S. government securities,
to estimate that dealers provide on a daily basis about $3.0 trillion
in cash in cleared and uncleared bilateral repo combined.\33\
Significant lessons were learned about the uncleared bilateral repo
market from the pilot. The Office is considering a separate rulemaking
in the future to collect data on an ongoing basis about the uncleared
bilateral segment of the U.S. repo market.
---------------------------------------------------------------------------
\32\ See Office, Bilateral Repo Data Collection Pilot Project,
undated online content, https://www.financialresearch.gov/data/repo-data-project/. Nine bank holding companies voluntarily provided data
on their outstanding bilateral repo and equivalent securities
lending trades for three days.
\33\ See Baklanova, Caglio, Cipriani, and Copeland (January 13,
2016).
---------------------------------------------------------------------------
III. Alternative Reference Rate Background
LIBOR is a set of widely-used reference rates for different
currencies and maturities that is intended to represent the cost of
unsecured borrowing in the interbank market. The sustainability of U.S.
dollar LIBOR is uncertain. In the wake of scandals arising from
misconduct related to LIBOR submissions, banks have become increasingly
reluctant to participate in the U.S. dollar LIBOR panel, and market
participants generally have trended away from unsecured funding and
toward secured funding transactions.\34\ Only about one-quarter of
current benchmark 3-month U.S. dollar LIBOR submissions are based on
actual transactions because of the low volume of unsecured funding
transactions.\35\ With fewer transactions, panel members are less able
to rely on arm's-length transactions as the basis for their
submissions, which subjects participating firms to possible criticism
or litigation risk. For these reasons, some U.S. dollar LIBOR
participants have questioned their continued involvement. Recognizing
the need to continue LIBOR publication while alternatives are
identified and operationalized, the U.K. Financial Conduct Authority
(``FCA'') released a consultation paper discussing its ability to
compel banks to continue providing submissions to the LIBOR panel.\36\
The paper concluded that the FCA's powers are time-limited and cannot
guarantee the ongoing viability of LIBOR. Subsequently, the FCA secured
a voluntary agreement with the LIBOR panel banks for their continued
participation in LIBOR panels through 2021.\37\
---------------------------------------------------------------------------
\34\ See Office's 2017 Financial Stability Report, pp. 27-28.
\35\ See ICE Benchmark Administration's ICE LIBOR Quarterly
Volume Report, Q1 2018, https://www.theice.com/publicdocs/ICE_Libor_Quarterly_Volume_Report_Q1_2018.pdf.
\36\ See Financial Conduct Authority, ``Powers in Relation to
LIBOR Contributions'' (June 2017), pp. 15-16, https://www.fca.org.uk/publication/consultation/cp17-15.pdf.
\37\ See Financial Conduct Authority, ``FCA Statement on LIBOR
Panels'' (November 24, 2017), https://www.fca.org.uk/news/statements/fca-statement-libor-panels.
---------------------------------------------------------------------------
For several years, the Council has recommended the identification
of alternative reference rates.\38\ Most recently, in its 2017 annual
report, the Council encouraged the completion of work to develop a
credible
[[Page 31901]]
implementation plan to achieve a smooth transition to the new rate.\39\
---------------------------------------------------------------------------
\38\ See Financial Stability Oversight Council, recommendations
in 2014, 2015, 2016, and 2017 annual reports, https://www.treasury.gov/initiatives/fsoc/studies-reports/Pages/2017-Annual-Report.aspx.
\39\ See Financial Stability Oversight Council, 2017 Annual
Report, p. 13, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC_2017_Annual_Report.pdf.
---------------------------------------------------------------------------
Following a report by the Financial Stability Board, the U.S.
effort to identify alternative interest rate benchmarks to U.S. dollar
LIBOR was coordinated by the Federal Reserve and supported by the
Council.\40\ The Federal Reserve convened the ARRC in November 2014,
with representation from many of the largest dealers.\41\ This body, a
voluntary, industry-led effort, worked to identify a preferred
alternative reference rate and lay out a roadmap for a transition to
that rate.
---------------------------------------------------------------------------
\40\ See Financial Stability Board report, Reforming Major
Interest Rate Benchmarks (July 22, 2014), https://www.fsb.org/2014/07/r_140722/. See Financial Stability Oversight Council, 2014, 2015,
2016, and 2017 annual reports, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf.
\41\ See Alternative Reference Rates Committee, minutes for
December 2014 meeting, and list of initial ARRC representatives
(December 12, 2014), https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2015/Dec-12-2014-ARRC-Minutes.pdf. The
committee's current membership is available at https://www.newyorkfed.org/arrc/governance.html.
---------------------------------------------------------------------------
In December 2017, the Federal Reserve Board announced that the
FRBNY, in cooperation with the Office, would begin producing three new
reference rates based on repo transaction data during the second
quarter of 2018.\42\ These three rates are the tri-party general
collateral rate, the BGCR, and the SOFR. Publication of these rates
began on April 3, 2018.\43\ The BGCR consists of overnight repos backed
by Treasury securities that occur in tri-party repo and the GCF Repo
service. The SOFR consists of overnight repos backed by Treasury
securities that occur in the tri-party repo market, the GCF Repo
service, and the DVP Service.\44\ The ARRC selected the SOFR as its
preferred alternative to U.S. dollar LIBOR.\45\ The FRBNY is currently
producing the SOFR and BGCR using the tri-party repo data it collects
from BNYM through the Federal Reserve Board's supervisory authority and
the data it obtains through the voluntary agreement with DTCC
Solutions, discussed above. This proposed collection is expected to
provide an ongoing and expanded source of data to support rates such as
the SOFR and BGCR, helping to fulfill the Council's recommendation for
the identification of alternative reference rates.
---------------------------------------------------------------------------
\42\ See Federal Reserve Board, Production of Rates Based on
Data for Repurchase Agreements, 82 FR 58397 (December 12, 2017).
\43\ See Federal Reserve Bank of New York, Statement Introducing
the Treasury Repo Reference Rates (April 3, 2018), https://www.newyorkfed.org/markets/opolicy/operating_policy_180403.
\44\ Production of this new rate, in addition to addressing a
financial stability issue, may improve market liquidity, as
benchmark regulation has been found to do. See Matteo Aquilina,
Gbenga Ibikunle, Vito Mollica, and Tom Steffen, ``Benchmark
Regulation and Market Quality,'' U.K. Financial Conduct Authority
Occasional Paper no. 27 (July 3, 2017), https://www.fca.org.uk/publication/occasional-papers/op17-27.pdf.
\45\ See Alternative Reference Rates Committee, The ARRC Selects
a Broad Repo Rate as its Preferred Alternative Reference Rate, (June
22, 2017), https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf.
---------------------------------------------------------------------------
IV. Justification for Proposed Collection
a. Collection of Centrally Cleared Repurchase Agreement Data
i. Importance of Centrally Cleared Repurchase Agreement Data for
Monitoring Financial Stability Risks
The collection of data on the centrally cleared segments of the
repo market marks an important step in carrying out the Council's
recommendation to expand and make permanent the collection of data on
the U.S. repo market. The Council recommended a permanent collection of
repo data in its 2016 annual report to improve transparency and risk
monitoring which was reiterated in the 2017 annual report.\46\ The
Office believes that the proposed approach of collecting certain
cleared repo data from CCPs, which already collect most or all of the
requested data during trade processing, will result in lower aggregate
costs to market participants than a collection from individual
participants. FICC has indicated that on average, it matches, nets,
settles, and risk-manages centrally cleared repo transactions valued at
more than $1.7 trillion per day.\47\ This proposed collection is
expected to result initially in reporting only from two FICC services:
The GCF Repo Service (a general collateral repo service), including
CCIT; and the DVP Service (a specific-security repo service). This
proposed collection, together with existing data collected on tri-party
repos, will allow about half of the estimated activity in the U.S. repo
market by volume to be analyzed and monitored.\48\
---------------------------------------------------------------------------
\46\ See Financial Stability Oversight Council, 2017 Annual
Report, p. 14, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC_2017_Annual_Report.pdf and 2016 Annual
Report, p. 14, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf.
\47\ See Depository Trust & Clearing Corporation, DVP Repo
Transactions, undated online content, https://www.dtcclearning.com/products-and-services/fixed-income-clearing/government-securities-division-gsd/dvp-service/dvp-repo-transactions.html.
\48\ See Baklanova, Caglio, Cipriani, and Copeland (January 13,
2016), using a method first outlined in Copeland, et al., ``Lifting
the Veil on the U.S. Bilateral Repo Market.'' Liberty Street
Economics: https://libertystreeteconomics.newyorkfed.org/2014/07/lifting-the-veil-on-the-us-bilateral-repo-market.html.
---------------------------------------------------------------------------
The collection of transactional data on centrally cleared repos is
key to the Council's effective identification and monitoring of
emerging threats to the stability of the U.S. financial system. The
repo market plays a number of critical functions which have associated
vulnerabilities that could give rise to conditions that impair the
ability of repo markets to perform. These functions also create
linkages between different financial markets and institutions, and
therefore potential channels for the propagation of shocks. These
vulnerabilities have developed in the past into threats to U.S.
financial stability, most notably during the 2007-09 financial
crisis.\49\
---------------------------------------------------------------------------
\49\ During the financial crisis, the repo market first began to
show stress in the summer of 2007, and runs on repos played a
central role in the failures of Bear Stearns and Lehman Brothers.
These threats can manifest quickly; the run on Bear Stearns took
place over less than a week. See Financial Crisis Inquiry
Commission, ``Conclusions of the Financial Crisis Inquiry
Commission,'' (January 2011) pp. 286-290.
---------------------------------------------------------------------------
Despite the vulnerabilities, only one of the four segments of the
U.S. repo market, the tri-party repo segment, is currently subject to a
mandatory regulatory data collection. Data gaps and the absence of
mandatory collections are a significant impediment to the Council's and
its member agencies' ongoing ability to monitor developments in the
repo market and potential emerging threats to financial stability. The
lack of comprehensive data on repos creates material blind spots with
regard to the most active short-term funding market in the U.S.
financial system. This proposed collection is an important step in
eliminating these blind spots.
From a financial stability perspective, it is important to monitor
transactions in centrally cleared repo for three reasons. First, repos
that are transacted through a CCP on a blind-brokered basis can act as
a critical market for repo borrowers that are under stress. Even
uncleared repos backed by high-quality collateral can become sensitive
to counterparty risk, potentially resulting in a run on the
institution's funding.\50\ Shifts in activity from specific-
counterparty repos to blind-brokered
[[Page 31902]]
transactions can therefore indicate market perceptions that a firm may
be under stress.
---------------------------------------------------------------------------
\50\ See Adam Copeland, Antoine Martin, and Martin Walker,
``Repo Runs: Evidence from the Tri-Party Repo Market'' (2011),
Federal Reserve Bank of New York Staff Reports.
---------------------------------------------------------------------------
Second, while counterparty risk is mitigated by the use of CCPs,
adverse changes in the value of collateral can propagate shocks arising
elsewhere in the financial system to CCP members by impacting their
ability to borrow in centrally cleared repo.\51\ Further, collateral
held at tri-party custodian banks that is used in centrally cleared
repos within the tri-party system is not available for delivery outside
of the tri-party system, making information on the collateral used in
this venue important for understanding broader market dynamics.
---------------------------------------------------------------------------
\51\ The linkages between funding and asset markets creates risk
of spillovers from one market to another because of the shared use
of collateral. Price impacts on collateral arising from the forced
sale of collateral due to the lack of confidence in the collateral
or a particular counterparty can have widespread effects beyond the
original transactions, leading to contagion that can culminate in
fire sales and potential threats to financial stability. The shared
use of collateral between different segments of the repo market
therefore creates a channel through which centrally cleared repo
transactions can be impacted by activity in other portions of the
repo market.
---------------------------------------------------------------------------
Third, while CCPs offer benefits in terms of settlement and risk
management, they may also propagate shocks to their members. If a repo
CCP were to fail, the repo intermediation capacity of the financial
system would be limited during a period of market stress. Even if this
risk were judged to be remote, in a circumstance where, as here, there
may be only one CCP, disruption of such a critical service could have
severe implications. For these reasons, and as noted by the Council in
its 2017 annual report, further analysis of risks related to CCPs is
appropriate.\52\
---------------------------------------------------------------------------
\52\ See Financial Stability Oversight Council, 2017 Annual
Report, pp. 123-4, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC_2017_Annual_Report.pdf.
---------------------------------------------------------------------------
Questions:
1. Is a data collection on centrally cleared repo transactions as
proposed appropriate? Does a centrally cleared repo collection support
the Council's recommendations?
2. To what extent may collecting counterparty information improve
financial stability monitoring?
ii. Importance of Centrally Cleared Repurchase Agreement Data to
Alternative Reference Rates
This proposed collection is expected to support the calculation of
the SOFR, the ARRC's preferred alternative reference rate. The SOFR
relies on Treasury repo data from three of the four segments of the
U.S. repo market. The Federal Reserve collects data for the tri-party
portion through its supervisory authority over the clearing banks.
While data on some GCF Repo and DVP Service transactions are available
to the FRBNY through a voluntary agreement with DTCC Solutions, a
permanent collection of these data will increase confidence that the
alternative reference rate's inputs will continue to be available. This
viability is important because the long-term success of any alternative
reference rate relies on the confidence market participants place in
it.
Another benefit of this proposed collection is the ability to
require specific data fields from centrally cleared general collateral
repo and centrally cleared specific-security repo services for use in
reference rate calculation.\53\ The Office has reviewed these data
fields with the FRBNY and believes the information would help to
improve and ensure the ongoing quality of the SOFR and BCGR. From an
early stage, the Office has contributed to the development of
alternative reference rates and has designed this proposed collection
to maximize its compatibility with alternative reference rates. Some of
the data fields in this proposed collection that are not currently
received under the voluntary agreement between the FRBNY and DTCC
Solutions would help ensure the continued quality of the rates. Most
notably, the identity of transaction counterparties is important for
rate calculation as it allows the calculation agent to identify and, as
appropriate, exclude, transactions (e.g., affiliate transactions) that
may not be representative of market activity. Further, by making
available data on trades that are outside the current scope of the
voluntary data collection that supports the rates, this proposed
collection would allow the Federal Reserve and the Office to better
monitor the evolution of markets and ensure that the rates continue to
target their intended underlying interests.
---------------------------------------------------------------------------
\53\ See infra Section V(b), information required, for a
discussion of individual data fields.
---------------------------------------------------------------------------
Finally, this proposed collection would help ensure the long-term
viability of the SOFR and BGCR by including within its scope reporting
from certain central counterparties that meet the $50 billion activity-
based materiality threshold. This assures rate production will be able
to include new comparable transactions in the calculation of the rate
as U.S. repo markets evolve in the future. This is of particular
importance given that trading in products tied to the new rate might
eventually subsume most volume that is currently tied to U.S. dollar
LIBOR. This proposed collection will help ensure a continued source of
standardized data on centrally cleared repos regardless of potential
changes in market structure.
Questions:
3. Would establishing a regulatory reporting requirement to collect
data on centrally cleared repos help ensure the continued availability
and quality of the ARRC's selected alternative reference rate?
b. Uses of the Data Collection
This proposed collection will be used by the Office to improve the
Council's and member agencies' monitoring of the U.S. repo market and
identifying and assessing potential financial stability risks. The
additional daily transaction data this proposed collection will provide
will facilitate identification of potential repo market vulnerabilities
and will also help identify shifting repo market trends that could be
destabilizing or indicate stresses elsewhere in the financial system.
Such trends might be reflected in indicators of the volume and price of
funding in the repo market at different tenors, differentiated by the
type and credit quality of participants and the quality of underlying
collateral. Further, analyzing the collateral data from this collection
together with other data available to the Office, the Council, and
member agencies will enable a clearer understanding of collateral flows
in securities markets and potential financial stability risks.
The Office expects, consistent with the Dodd-Frank Act, to share
data and information with the Council and member agencies, and such
data and information must be maintained with at least the same level of
security as used by the Office and may not be shared with any
individual or entity without the permission of the Council.\54\
Consistent with this authority, the Office expects to make available
the data from this proposed collection to the Federal Reserve Board and
the FRBNY for purposes of meeting the above alternative reference rate
and monitoring objectives as well as other market analysis and
research. The Office will also make data collected and maintained under
this proposed collection available to the Council and member agencies,
as necessary to support their regulatory responsibilities.\55\ The
sharing of any data from this proposed collection will be subject to
the confidentiality and
[[Page 31903]]
security requirements of applicable laws, including the Dodd-Frank
Act.\56\ Pursuant to the Dodd-Frank Act, the submission of any non-
publicly available data to the Office under this proposed collection
will not constitute a waiver of, or otherwise affect, any privilege
arising under federal or state law to which the data or information is
otherwise subject.\57\
---------------------------------------------------------------------------
\54\ 12 U.S.C. 5343(b).
\55\ 12 U.S.C. 5344(b)(5).
\56\ E.g., 12 U.S.C. 5343(b), 5344(b)(3).
\57\ 12 U.S.C. 5343(b), 5322(d)(5).
---------------------------------------------------------------------------
Aggregate or summary data from this proposed collection might be
provided to the public to increase market transparency and facilitate
research on the financial system, to the extent that intellectual
property rights are not violated, business confidential information is
properly protected, and the sharing of such information poses no
significant threats to the U.S. financial system. The potential sharing
of aggregate or summary data collected under this proposed collection
would help fulfill a recommendation of the Council to make
appropriately aggregated securities financing data available to the
public.\58\
---------------------------------------------------------------------------
\58\ See Financial Stability Oversight Council, Council's 2017
Annual Report, p. 16, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf.
---------------------------------------------------------------------------
The Office may also use the data to sponsor and conduct additional
research.\59\ This research may include the use of these data to help
fulfill the duties and purposes under the Dodd-Frank Act relating to
the responsibility of the Office's Research and Analysis Center to
develop and maintain independent analytical capabilities to support the
Council and relating to the programmatic functions of the Office's Data
Center.\60\ For example, access to data on centrally cleared repos will
allow the Office to conduct research related to the Council's analysis
of potential risks arising from securities financing activities.
---------------------------------------------------------------------------
\59\ 12 U.S.C. 5343(b)(2).
\60\ 12 U.S.C. 5344(b) discusses the Office's Data Center, and
12 U.S.C. 5344(c) discusses the various uses of data by the Office's
Research and Analysis Center to support the Council.
---------------------------------------------------------------------------
c. Legal Authority
The ability of the Office to collect centrally cleared repo data in
this proposed collection derives in part from the authority to
promulgate regulations regarding the type and scope of financial
transaction and position data from financial companies on a schedule
determined by the Director in consultation with the Council.\61\ The
Office consulted with the Council on the proposed permanent collection
of repo data at the Council's September 22, 2016, meeting.\62\ The
Office also provided a public update to the Council on November 16,
2017.\63\
---------------------------------------------------------------------------
\61\ 12 U.S.C. 5344(b)(1)(B)(iii).
\62\ See Financial Stability Oversight Council, meeting minutes
(September 22, 2016), https://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/September222016_minutes.pdf.
\63\ See Financial Stability Oversight Council, meeting minutes
(November 16, 2017), https://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/November162017_minutes.pdf, and Office,
OFR Update on Bilateral Repo Collection (November 22, 2017), https://www.financialresearch.gov/from-the-management-team/2017/11/22/ofr-update-on-bilateral-repo-collection/.
---------------------------------------------------------------------------
The Office also has authority to promulgate regulations pursuant to
the Office's general rulemaking authority under Dodd-Frank Act section
153, which authorizes the Office to issue rules, regulations, and
orders to the extent necessary to carry out certain purposes and duties
of the Office.\64\ In particular, the purposes and duties of the Office
include supporting the Council in fulfilling its duties and purposes,
and supporting member agencies, by collecting data on behalf of the
Council and providing such data to the Council and member agencies, and
standardizing the types and formats of data reported and collected.\65\
The Office must consult with the Chairperson of the Council prior to
the promulgation of any rules under section 153 \66\--this consultation
occurred prior to the publication of this proposed collection.
---------------------------------------------------------------------------
\64\ 12 U.S.C. 5343(a), (c)(1).
\65\ 12 U.S.C. 5343(a). The Council's purposes and duties
include identifying risks to U.S. financial stability; responding to
emerging threats to the stability of the U.S. financial system;
monitoring the financial services marketplace in order to identify
potential threats to U.S. financial stability; making
recommendations in such areas that will enhance the integrity,
efficiency, competitiveness, and stability of the U.S. financial
markets; and identifying gaps in regulation that could pose risks to
the financial stability of the United States. 12 U.S.C. 5322(a).
\66\ 12 U.S.C. 5343(c)(1).
---------------------------------------------------------------------------
This proposed collection will support the Council and member
agencies by addressing the Council's recommendation to expand and make
permanent the collection of data on the U.S. repo market; helping the
Council and member agencies identify, monitor, and respond to risks to
financial stability; identifying gaps in regulation that could pose
risks to U.S. financial stability; and assisting in the production of
alternative reference rates.\67\ The Office understands that the full
scope of transaction information on the centrally cleared repo market
required to fulfill the purposes of this proposed collection is not
currently available to the Council or member agencies, including the
primary financial regulatory agency for clearing agencies. The Council
has recognized in its annual reports that weaknesses in LIBOR raised
financial stability concerns and recommended the identification of
alternative reference rates such as the secured, transactions-based
rates this proposed collection will bolster. Thus, by supporting the
production of alternative reference rates, this proposed collection
will support the Council in fulfilling its duties and purposes.
---------------------------------------------------------------------------
\67\ See supra, discussion in Section IV(a) about the importance
of collecting repo data.
---------------------------------------------------------------------------
The Office's statutory authority allows for the collection of
transaction or position data from financial companies.\68\ ``Financial
company,'' for purposes of Office authority, has the same meaning as in
Title II of the Dodd-Frank Act.\69\ For this proposed collection, the
Office expects that CCPs for repos, as defined in this proposed
collection, will typically be ``financial companies'' as defined in
Title II because they are incorporated or organized under federal or
state law and are companies ``predominantly engaged'' in activities
that the Federal Reserve Board has determined are financial in nature
or incidental thereto for purposes of section 4(k) of the Bank Holding
Company Act of 1956 \70\ (or they are a subsidiary thereof).\71\ For a
company to be ``predominantly engaged'' in activities that are
financial in nature or incidental thereto, either (1) at least 85
percent of the total consolidated revenues of the company for either of
its two most recently completed fiscal years must be derived, directly
or indirectly, from financial activities; or (2) based upon all the
relevant facts and circumstances, the consolidated revenues of the
company from financial activities must constitute 85 percent or more of
the total consolidated revenues of the company.\72\
---------------------------------------------------------------------------
\68\ 12 U.S.C. 5344(b)(1)(B)(iii).
\69\ 12 U.S.C. 5341(2).
\70\ 12 U.S.C. 1843(k).
\71\ A ``financial company'' also includes a bank holding
company or a nonbank financial company supervised by the Federal
Reserve Board. 12 U.S.C. 5381(a)(11).
\72\ 12 CFR 380.8(a).
---------------------------------------------------------------------------
Dodd-Frank Act section 201(b) required the Federal Deposit
Insurance Corporation (``FDIC'') to issue a rule establishing the
criteria for determining whether a company is predominantly engaged in
activities that are financial in nature or incidental thereto for
purposes of Title II. The final rule adopted by the FDIC indicates that
the determination of whether an activity is financial in nature is
based upon Section 4(k) of the Bank Holding Company Act of 1956,
[[Page 31904]]
and that since the Federal Reserve Board is the agency with primary
responsibility for interpreting and applying Section 4(k), the FDIC
coordinated its rulemaking pursuant to Sec. 201(b) of the Dodd-Frank
Act with the Federal Reserve Board's rulemaking defining the term
``predominantly engaged in financial activities'' for purposes of Title
I of the Dodd-Frank Act.\73\ Consistent with the Federal Reserve
Board's final rule, the FDIC's final rule interpreting how to evaluate
whether an entity is a ``financial company'' for purposes of Title II
of the Dodd-Frank Act includes the activities of repo clearing
including transferring money or securities; providing any device or
other instrumentality for transferring money or other financial assets;
providing financial data processing, storage and transmission services;
arranging, effecting, or facilitating financial transactions for the
account of third parties; and providing to customers as agent
transactional services with respect to government obligations.\74\
Given the necessary experience, expertise and market credibility,
entities that clear repos will typically be predominantly engaged in
these or related financial activities, and therefore will be financial
companies and potentially covered reporters under this proposal. The
one expected covered reporter appears to be predominately engaged in
these financial activities, making it a financial company.\75\
---------------------------------------------------------------------------
\73\ For the final version of each rule, see Federal Reserve
System, Definitions of ``Predominantly Engaged In Financial
Activities'' and ``Significant'' Nonbank Financial Company and Bank
Holding Company, Final Rule, 78 FR 20756 (March 29, 2013); and
Federal Deposit Insurance Corporation, Definition of ``Predominantly
Engaged in Activities That Are Financial in Nature or Incidental
Thereto,'' Final Rule, 78 FR 34712 (June 4, 2013).
\74\ 12 CFR 380.8(b).
\75\ The Office has reviewed the disclosures of the expected
covered reporter and its parent under this proposed collection and
believes it is predominantly engaged in financial activities and is
therefore a financial company.
---------------------------------------------------------------------------
V. Collection Design
This proposed collection will be the first recurring and mandatory
data collection from the Office. The proposed regulatory text includes
two sub-parts: the first sets out general requirements for data
collection necessary for this proposal and any future Office proposed
collections, and the second lists the requirements specifically
relevant to this proposed collection. The first regulatory text sub-
part cites the statutory authority of the Office to require the
submission of information. The second regulatory text sub-part is
designed to describe individual collections by the Office. This
proposed collection will be the first section under this sub-part. The
section includes three tables that describe the data elements that
covered reporters will be required to submit. The Office expects to
publish filing instructions regarding matters such as data submission
mechanics and formatting in connection with any final rule on the
Office's website.
a. Scope of Application
This proposed collection will require the submission of transaction
information by any CCP whose average daily total open commitments in
repo contracts across all services over all business days during the
prior calendar quarter is at least $50 billion. ``Open commitments''
refers to the CCP's gross cash positions, prior to netting. For
example, a CCP might clear two trades beginning on the same day with an
overnight maturity; in the first trade, Firm A lends $100 million to
Firm B in exchange for $100 million of securities, and in the second
trade, Firm C lends Firm A $100 million in exchange for $100 million of
securities. The total open commitments for the CCP for these two trades
is $200 million. A CCP is defined in this proposed collection as ``a
clearing agency that interposes itself between the counterparties to
transactions, acting functionally as the buyer to every seller and the
seller to every buyer.'' \76\ The Office proposes defining ``clearing
agency'' the same way as in the Securities Exchange Act of 1934, as
amended, which defines a clearing agency as ``any person who acts as an
intermediary in making payments or deliveries or both in connection
with transactions in securities or who provides facilities for
comparison of data respecting the terms of settlement of securities
transactions, to reduce the number of settlements of securities
transactions, or for the allocation of securities settlement
responsibilities.'' \77\ Only CCPs that are clearing agencies and that
perform the central clearing function for repo transactions at or above
the volume threshold are required to report as covered reporters under
this proposed collection. The regulatory text also defines ``repurchase
agreement.'' \78\ Requiring submission of transaction-level repo data
from CCPs allows for a more efficient collection than a data submission
from each clearing member.
---------------------------------------------------------------------------
\76\ This definition of ``central counterparty'' is consistent
with the definitions used by the Committee on Payment and Market
Infrastructures and the International Organization of Securities
Commissions (``CPMI-IOSCO''), see Principles for Financial Market
Infrastructures (April 2012), p. 9, https://www.bis.org/cpmi/publ/d101a.pdf, and the Financial Stability Board, see Guidance on
Central Counterparty Resolution and Resolution Planning, p. 22,
https://www.fsb.org/wp-content/uploads/P050717-1.pdf.
\77\ 15 U.S.C. 78c(a)(23).
\78\ See Regulatory Text Sec. 1610.10(a).
---------------------------------------------------------------------------
As noted above, this proposed collection establishes a $50 billion
volume threshold for determining whether a CCP is a covered reporter
and is therefore required to report. The Office believes the proposed
$50 billion activity-based threshold indicates sufficient volume for
the CCP to be considered a material CCP in the repo market. One of the
benefits of a CCP is the netting it provides to clearing members, which
increases with the size of the CCP's services. As a result, CCPs in a
given market tend to be few in number and large.
While the Office understands that there is only one reporter
currently covered by this proposed collection's scope, any other CCP
would be required to start submitting data under this rule beginning on
the first business day of the third calendar quarter after the calendar
quarter in which the CCP meets the $50 billion activity-based
materiality threshold. For example, if a CCP were to surpass the
threshold beginning with the quarter ending on March 31 of a given
year, that CCP would become subject to the reporting requirements of
the rule on the first business day of the calendar quarter that begins
after two intervening calendar quarters--in this case, October 1.
A covered reporter whose volume falls below the $50 billion
threshold for at least four consecutive calendar quarters will have its
reporting obligations cease. For example, if a covered reporter ceases
to meet the $50 billion threshold beginning with the quarter ending
June 30 of a given year, and remains below the $50 billion threshold in
each of the following three quarters (in this example, through the
quarter ending March 31 of the following year), its reporting
obligations would cease as of April 1.
This proposed collection will require CCPs that meet the
aforementioned repo volume thresholds to report all repos they clear.
Given the existing differences between how general collateral and
specific-security trades are reported to repo clearing services, this
proposed collection separates the reporting information required into
distinct schedules for each type of centrally cleared repo service.
Questions:
4. The covered reporter definition seeks to include in the rule's
scope only current or future material repo CCPs. The definition also
seeks to exclude tri-party custodian banks already required to report
on another portion of the repo
[[Page 31905]]
market from reporting under this proposal. Does the proposed covered
reporter definition meet this objective and if not, what might the
Office consider as an alternative?
5. Is the $50 billion activity-based volume threshold for
identifying covered reporters clear and appropriate for ensuring the
inclusion of only current or future material repo CCPs?
6. Is collecting centrally cleared repo transactions from CCPs more
efficient than collecting these transactions from individual
counterparties? How could the collection be made more efficient?
7. Are the definitions of general collateral trade and specific-
security trade in the proposed regulatory text sufficiently clear to
allow reporters to determine on which schedules they should be
reporting?
b. Information Required
This proposed collection has three schedules: the first covers
details on general collateral trades, the second covers details on the
securities used to collateralize net positions in general collateral
repo, and the third covers specific-security trades. Each schedule is
tailored to capture specific information regarding covered transactions
in a manner that the Office believes reflects the data exchanged with
CCPs in the ordinary course of business. The required data elements in
these schedules are listed in Tables 1, 2, and 3 of Section Sec.
1610(c) of the proposed regulatory text. Each table lists each required
element and a brief description of that element. Below is a description
of the general categories of information covered by the collection and
further detail on certain key data fields.
i. Legal Entity Identifier Usage
The Office's published brief on the interagency bilateral repo
pilot collection noted difficulties in working with the data due to the
absence of standardized counterparty information.\79\ Authorities from
around the world, including those in the United States, have
established a global legal entity identifier (``LEI'') system, with
oversight effected by a Regulatory Oversight Committee, composed of
those same authorities, to coordinate and oversee a global system of
legal entity identification. A Swiss nonprofit foundation, the Global
LEI Foundation (``GLEIF''), was established to provide operational
governance and management of local operating units that issue LEIs. The
LEI is a 20-character identifier based on the ISO 17442 standard that
identifies distinct legal entities that engage in financial
transactions. An LEI allows for unambiguous identification of firms and
affiliates.\80\
---------------------------------------------------------------------------
\79\ See Baklanova, Caglio, Cipriani, and Copeland (January 13,
2016).
\80\ See Global Legal Entity Identifier Foundation, Introducing
the Legal Entity Identifier, undated online content, https://www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei/.
---------------------------------------------------------------------------
The Office proposes to require reporting of an LEI. The LEI
reported must be properly maintained, meaning it must be kept current
and up to date according to the standards implemented by the GLEIF. The
Office believes that while requiring the LEI may result in some
additional compliance costs, doing so is reasonable and appropriate due
to the added clarity and substantial benefit for the monitoring it
provides and rate production. Based on a review of the public
membership lists of counterparties to the one expected covered
reporter, the Office estimates that under the proposed collection,
approximately 800 counterparties will need to acquire an LEI at a cost
of approximately $100 per instance initially and approximately $50 on
an annual basis thereafter, for a total aggregate cost of $80,000 to
market participants the first year and $40,000 annually thereafter.
Each legal entity transacting with a covered reporter will be required
to obtain only one LEI regardless of the number of reported
transactions. The Office recognizes that the LEI acquisition cost may
be only a portion of the total compliance cost for repo counterparties,
and that firms may incur additional costs stemming from the inclusion
of the LEI in their trade reporting systems. In this regard, there are
two viable options for including an LEI in the data fields. The first
option is to amend the messaging system to include the LEI. The second
option is to add LEIs of reporting entities and counterparties after
the transactions take place but prior to submission of data to the
Office. While this second option would require fewer parties to update
their systems, it is possible that market participants may desire
access to the LEIs of their counterparties for risk management
purposes, thus making the first option preferable to member firms.
Either option would be acceptable to the Office.
Identification of the entities involved in a covered repo
transaction is important to enhance the ability of the Council and the
Office to identify risks to U.S. financial stability by allowing it to
understand repo market participants' exposures, concentrations, and
network structures. This proposed collection requires the submission of
the LEI of each covered reporter, direct clearing member, counterparty,
and broker involved in a covered transaction.\81\ The LEIs of these
entities will facilitate evaluation of the covered transaction and
whether a covered transaction was conducted on an arm's-length basis or
between affiliates. Further, these LEIs will reduce the need for manual
intervention in matching identical participants that supply different
naming conventions depending on the sponsoring broker reporting, and
eventually, when the LEI system fully produces this capacity, in
helping to identify parent and affiliate relationships.
---------------------------------------------------------------------------
\81\ For purposes of the data reporting schedules, a broker is
an entity that is an SEC-registered broker and is arranging a
covered transaction for the accounts of other entities acting as
cash providers or securities providers.
---------------------------------------------------------------------------
Mandatory adoption of the LEI will also benefit firms and
regulators by improving the ability to combine repo information with
other information necessary to monitor system or firm risk. This is
particularly so given that more than 1 million firms have obtained an
LEI and are therefore becoming capable of obtaining these benefits. The
aggregate cost savings for the financial service industry upon broader
adoption of the LEI have been estimated in the hundreds of millions of
dollars.\82\
---------------------------------------------------------------------------
\82\ See generally, McKinsey & Company and Global Legal Entity
Identifier Foundation, ``The Legal Entity Identifier: The Value of
the Unique Counterparty ID,'' (October 2017), pp. 4, 14, and 17,
https://www.gleif.org/en/about-lei/mckinsey-company-and-gleif-creating-business-value-with-the-lei/.
---------------------------------------------------------------------------
This proposed collection includes reporting fields for the LEIs of
the direct clearing members that are parties to a covered transaction.
This proposed collection also includes reporting fields for the LEIs of
any cash or securities provider that is a counterparty to the
transaction. For these fields, respondents should indicate the LEI of
the indirect clearing member if one exists, and otherwise the LEI of
the direct clearing member, that has provided cash or securities. When
a registered broker is a counterparty to a transaction, it should be
listed both as the broker and as a cash provider or securities
provider.
Questions:
8. What, if any, challenges do participants in centrally cleared
repo markets anticipate regarding obtaining and maintaining an LEI?
9. What, if any, challenges do potential respondents anticipate in
reporting the LEIs of participants in centrally cleared repo markets?
[[Page 31906]]
10. Would respondents and repo market participants prefer to amend
the messaging system to include LEIs, or to add LEIs of reporting
entities and counterparties after the transactions take place but prior
to submission of data to the Office?
ii. Transaction Information
Transaction-level data coupled with counterparty information permit
an understanding of detailed exposures among firms and across asset
markets. Transaction-level data are also necessary inputs to calculate
the SOFR and BGCR. Transaction-level data will require a unique
identifier for each transaction. This identifier must be assigned by
the covered reporter and never re-used for another transaction over the
life of this proposed collection. The transaction identifier must be
persistent throughout the life cycle of the transaction, regardless of
any subsequent amendments to the transaction, such as substitutions of
collateral. Because CCPs currently must track the life cycle of each
trade for settlement purposes, some type of unique identification
scheme already exists. Any CCP required to report under this rule would
be required to submit its own unique, persistent transaction
identifier. As an alternative to a reporter-generated transaction
identifier, the Office encourages, but is not requiring, respondents to
coordinate with their counterparties to adopt and report using the
Unique Transaction Identifier.\83\
---------------------------------------------------------------------------
\83\ The Unique Transaction Identifier (``UTI''), alternatively
called Unique Swap Identifier (``USI''), is a globally unique
identifier for individual transactions in financial markets. USIs
were introduced in late 2012 in the United States, when reporting
transactions to trade repositories became mandatory under the Dodd-
Frank Act. The term USI is specific to U.S. regulation, while the
UTI represents the output of a global effort among regulators to
harmonize transaction reporting standards across jurisdictions. The
method for creating and maintaining UTIs was designed to support
existing USIs and provide a global regulatory approach. Large
trading firms reporting under multiple regulatory regimes may use
the terms interchangeably. See CPMI-IOSCO, Consultative Report on
Harmonization of the Unique Transaction Identifier (August 2015),
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD500.pdf.
---------------------------------------------------------------------------
In all cases where securities identifiers are used, the type of
identifier must be reported, such as ISIN or CUSIP. General collateral
trade submissions must contain information on the security asset class
in order to identify the correct transactions for rate production. This
field must consist of an identifier that corresponds to a set of
agreed-upon securities. Collateral delivered against net exposures
between firms and CCPs must also be identified using a specific
security identifier. This provides information on how CCP exposures are
collateralized, as well as the quantity of securities that have been
delivered against net exposures. The general collateral trades also
must indicate whether the securities were delivered to the CCP against
a net security delivery obligation or received from the CCP as
collateral against a net cash loan.
Reporting on specific-security repos will require a security
identifier as well as information on the quantity of securities
delivered against a position, and whether substitution of collateral is
permitted. Knowing the quantity of securities delivered will help
determine levels of over-collateralization in the market and the flow
of securities as firms engage in security transformation and acquire
specific securities for delivery or sale. Indicating whether
substitution of collateral is allowed may indicate the motivation for a
trade. In the case of transactions allowing collateral substitution,
covered reporters are required to supply an identifier indicating the
securities that are acceptable to the cash provider as substitutes
under the repo for the initially pledged collateral.
Questions:
11. The Office is not proposing the reporting of a standardized
transaction identifier at this point. Is this the appropriate decision
and if so, at which point should such an identifier be required?
12. Should the UTI be required at this point in the event that
another covered reporter comes into existence in order to harmonize
transactions across clearing platforms?
iii. Date and Tenor Information
This proposed collection will require information on the start and
end dates of transactions; the date that each transaction was agreed
to; whether a trade has optionality; and, for repos that are open or
have optionality, the first possible maturity of the transaction.
Existing CCPs do not presently allow for optionality in repos or for
open transactions, but if offered in the future, these features would
be important to capture.
There are a number of proposed fields regarding date and tenor
information. The agreement timestamp is the date and time on which a
covered transaction was agreed to. This field is critical for
differentiating same-day-start trades from forward-settling trades. The
information is essential to understanding how a transaction is priced
and determining whether the transaction should be included in an
alternative reference rate. The start date is the date on which a
settlement obligation related to the exchange of cash and securities
for a covered transaction first exists. The match timestamp refers to
the time and date on which the covered transaction is matched by the
covered reporter. The end date refers to the date on which the cash
providers and securities providers to the covered transaction are
obliged to return the cash and securities.
For an open trade, no end date is to be specified, and the
optionality field must indicate that the transaction has an open
maturity. The minimum maturity field in this case must be used to
indicate the next date that the interest rate is to be reset.
For repos with optionality, the end date for a transaction must
continue to be specified as the date that the transaction would
terminate if no option were exercised. The optionality field indicates
how the maturity of a transaction can be changed after initial
agreement. Minimum maturity in this case refers to the earliest
possible date on which the parties could be obliged to return the cash
and securities, taking optionality into account.
Observation days consist of all days on which a covered reporter
accepts and processes covered transactions. For every observation day,
covered reporters are required to submit a file of all outstanding
transactions to the Office's collection agent by 6:00 a.m. Eastern time
the following business day.
iv. Trade Size and Rate
The principal amount in the centrally cleared general collateral
trades schedule is the amount of cash borrowed or lent. This schedule
also requires information on the agreed-upon rate for the trade, which
is the interest rate at which the cash provider agrees to lend to the
securities provider. This rate must be expressed as the annualized rate
based on an actual/360-day count.
The securities quantity field in the general collateral net
exposure schedule for the general collateral repo collection and the
specific-security trades schedule is defined as the principal amount or
par value of the securities pledged in a repo transaction.
The specific-security trades schedule includes four fields on the
exchange of cash in these repo transactions. Information is required on
the amount of cash exchanged by the cash and securities providers at
the initiation and close of the trade. This schedule also requires
information on the rates reported by the cash and securities providers.
[[Page 31907]]
v. Price of Collateral/Security
The securities value field in the general collateral net exposure
schedule requires the reporting of the market value of the securities
pledged, inclusive of accrued interest. The market value of securities
is, in combination with the identifier, important for understanding how
CCP exposures are collateralized.
Questions:
13. Are the proposed reporting fields generally appropriate? Do any
particular proposed reporting fields raise specific questions or
concerns?
14. Are there any additional fields not currently being requested
that the Office should consider including in order to better accomplish
the Office's or Council's goals presented in this proposal?
15. The proposed regulatory text contains definitions the Office
believes are necessary. Are these definitions clear?
c. Submission Process and Implementation
The Office intends to require submission through a collection
agent. The Office believes this approach will decrease the costs of
compliance for covered reporters and allow data reporting to commence
sooner than would otherwise be possible. The Office expects that the
Federal Reserve Board will act as the Office's collection agent, with
required data to be submitted directly by covered reporters to the
FRBNY. The FRBNY will transmit collected data to the Office.
Additionally, the Office expects the FRBNY will have access to the
reported data for purposes of the daily SOFR and BGCR rate production.
To produce this alternative reference rate calculation, data on covered
transactions must be submitted by respondents to the FRBNY no later
than 6:00 a.m. Eastern time on the business day following the
transaction. The submission process will allow for the secure,
automated transmission of files. The Office expects that the final rule
will go into effect 60 days after its publication in the Federal
Register and is proposing that covered reporters begin to comply with
the final rule 60 days after its effective date. The Office believes
this implementation period will provide adequate time for covered
reporters to comply with the proposed requirements.
Questions:
16. Would respondents incur additional costs due to the requirement
for unique transaction identification? If so, please provide estimates
of those costs.
17. Does the proposed 60-day compliance period for a central
counterparty that is a covered reporter on the effective date of the
rule provide sufficient time to comply with the data reporting
requirements?
18. Does the two quarter phase in period for a central counterparty
that becomes a covered reporter after the effective date of the rule
provide sufficient time to comply with the data reporting requirements?
19. Are there any additional costs associated with data reporting
as contemplated by this proposed collection? If so, please provide
estimates of those costs.
20. Would increasing the time period between the effective date of
a final rule and the subsequent compliance date substantially reduce
burdens for covered reporters or repo market participants, or improve
the quality of the data reported under this proposed collection? Are
there any aspects of the proposed collection that a phased-in reporting
requirement would be particularly useful for?
21. What, if any, barriers to entry could the requirements of this
proposed collection create for future CCPs for repo?
VI. Administrative Law Matters
a. Paperwork Reduction Act
The collection of information contained in this proposed collection
has been submitted to the Office of Management and Budget (``OMB'') in
accordance with the Paperwork Reduction Act of 1995 (``PRA'').\84\
Comments on the collection of information should be sent to the Office
of Management and Budget, Attention: Desk Officer for the Department of
the Treasury/Office of Financial Research, Office of Information and
Regulatory Affairs, Washington, DC 20503 (or by email to
[email protected]), with copies to the Office of Financial
Research at 717 14th Street NW, Washington, DC 20220.
---------------------------------------------------------------------------
\84\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
The proposed collection establishes the permanent collection of
certain information on repo transactions and is a ``collection of
information'' pursuant to the PRA. Any collection of information
addressed to all or a substantial majority of an industry is presumed
to involve 10 or more covered reporters.\85\ While the Office estimates
there is only one covered reporter, the Office has undertaken a PRA
analysis to ensure that the proposed collection will continue to be PRA
compliant in the event additional central counterparties become subject
to the rule's reporting requirements. The Office is an independent
regulatory agency under the PRA \86\ and for purposes of OMB review. In
accordance with the requirements of the PRA, the Office may not conduct
or sponsor, and a covered reporter is not required to respond to, an
information collection unless it displays a currently valid OMB control
number.
---------------------------------------------------------------------------
\85\ 5 CFR 1320.3(c)(4)(ii).
\86\ 44 U.S.C. 3502(5).
---------------------------------------------------------------------------
The Office anticipates that this proposed collection will require
submission by one covered reporter, which will be required to make a
general collateral and specific-security submission daily in accordance
with the tables in the proposed regulatory text. The Office anticipates
an annual burden of 1,512 hours per covered reporter. This figure is
arrived at by estimating the daily reporting time to be approximately 3
hours for each general collateral and specific-security submission,
multiplied by 2 to reflect both types of submissions by the covered
reporter, and multiplying that figure by an average of 252 business
days in a year, the typical number of days per year that do not fall
either on weekends or on holidays widely observed by the market.
To estimate hourly wages, the Office used data from the May 2016
Bureau of Labor Statistics Occupational Employment Statistics for
credit intermediation and related activities (NAICS 522000). For hourly
compensation, a figure of $75 per hour was used, which is an average of
the 90th percentile wages in seven different categories of employment
(compliance officers, accountants and auditors, lawyers, management
occupations, financial analysts, software developers, and
statisticians), plus an additional 32 percent to cover subsequent wage
gains and non-wage benefits, which yields an estimate of $99 per
hour.\87\ Using these assumptions, the Office estimates the recurring
operational costs for general collateral and specific-security
submissions to be $74,844 annually, for a total estimated annual cost
to the covered reporter of $149,688.
---------------------------------------------------------------------------
\87\ The estimate includes an assumed additional 2 percent for
subsequent wage gains from 2016 to 2017, and 30 percent for non-wage
employee benefits, according to the Bureau of Labor Statistics' June
2017 Employer Costs for Employee Compensation, https://www.bls.gov/news.release/archives/ecec_09082017.htm.
---------------------------------------------------------------------------
Office Estimates Summary:
Title: Ongoing Data Collection of Centrally Cleared Transactions in
the U.S.
[[Page 31908]]
Repurchase Agreement Market
Office: Office of Financial Research.
Frequency of Response: Daily (12 CFR 1610.10(d)).
Affected Public: Businesses or other for-profit.
Scope of Covered Reporters: Any central counterparty, defined as a
clearing agency that interposes itself between the counterparties to
transactions, whose average daily total open commitments in repurchase
agreement contracts across all services over the prior calendar quarter
is at least $50 billion. (12 CFR 1610.10(a), (b)(2)).
Number of Covered Reporters: One covered reporter submitting
information on two clearing services.
Estimated Time Per Covered Reporter Per Submission: 6 hours.
Number of Submissions:
Daily submission containing both general collateral transactions
(12 CFR 1610.10(c)(3), (4)) and specific security trades (12 CFR
1610.10(c)(5)).
Anticipated Annual Submissions: 252.
Total Estimated Annual Burden: 1,512 hours.
In addition to recurring reporting costs, the Office anticipates
the covered reporter will experience one-time initial start-up costs to
account for data management systems and software, operations, and
alignment of reporting schedules for ease of data transmission. The
estimate of these initial costs is 2,500 hours for the two general
collateral schedules, and 2,500 hours for the specific-security
schedule, per covered reporter. Because the Office anticipates one
covered reporter submitting both the general collateral schedules and
the specific-security schedule, the estimated initial start-up cost of
required reporting for both submissions is $495,000.
The Office invites comments on the following: (a) Whether the
proposed collection of information is necessary for the proper
performance of the Office, including whether the information would have
practical utility; (b) the accuracy of the estimate of the burden of
the proposed collection of information; (c) ways to enhance the
quality, utility, and clarity of the information required to be
maintained; (d) ways to minimize the burden of the required collection
of information, including through the use of automated collection
techniques or other forms of information technology; and (e) estimates
of capital or start-up costs and costs of operation, maintenance, and
purchase of services to report the information.
b. Regulatory Flexibility Act
Congress enacted the Regulatory Flexibility Act (the ``RFA'') to
address concerns related to the effects of agency rules on small
entities.\88\ The Office is sensitive to the impact its rules may
impose on small entities. The RFA requires agencies either to provide
an initial regulatory flexibility analysis with a proposed rule for
which general notice of proposed rulemaking is required, or to certify
that the proposed rule will not have a significant economic impact on a
substantial number of small entities.\89\ In accordance with section
3(a) of the RFA, the Office is certifying that this proposed collection
will not have a significant economic impact on a substantial number of
small entities.
---------------------------------------------------------------------------
\88\ 5 U.S.C. 601 et seq.
\89\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
As discussed above, this proposed collection will only apply to
CCPs for repos whose average daily total open commitments in repo
contracts across all services over the prior calendar quarter is at
least $50 billion. Currently, under this scope, this proposed
collection would apply only to one entity, whose corporate parent's
total consolidated assets were $39 billion as of March 31, 2018.\90\
Reporting will be required of additional central counterparties
beginning on the first business day of the third calendar quarter after
the calendar quarter in which such central counterparties meet the $50
billion activity-based materiality threshold. If a covered reporter
ceases to meet this threshold for at least four consecutive calendar
quarters, its reporting obligations under this rule would cease.
---------------------------------------------------------------------------
\90\ See DTCC, ``DTCC Condensed Consolidated Financial
Statements as of March 31, 2018 and December 31, 2017 and for the
three months ended March 31, 2018 and 2017,'' https://www.dtcc.com/~/
media/Files/Downloads/legal/financials/2018/DTCC-Condensed-
Consolidated-Financial-Statements-Q1-2018.pdf.
---------------------------------------------------------------------------
Under regulations issued by the Small Business Administration, a
``small entity'' includes those firms within the ``Finance and
Insurance'' sector with asset sizes that vary from $7.5 million in
assets to $550 million or less in assets.\91\ For purposes of the RFA,
entities that are banks are considered small entities if their assets
are less than or equal to $550 million. The size of the activity-based
threshold in this proposed collection ensures that any respondent will
be well beyond these small entity definitions.
---------------------------------------------------------------------------
\91\ 13 CFR 121.201.
---------------------------------------------------------------------------
Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(b), it is
hereby certified that this proposed collection will not have a
significant economic impact on a substantial number of small entities.
c. Plain Language
The Office has sought to present this proposed collection in a
simple and straightforward manner. The Office invites comments on how
to make this proposal, the regulatory text, or the reporting schedules
easier to understand. The Office specifically invites comments on the
following questions:
22. Are the requirements in the proposal clearly stated? If not,
how could the proposed rule be more clearly stated?
23. Does the proposed rule contain language or jargon that is not
clear? If so, which language requires clarification?
24. Would a different format (e.g., groupings, ordering of
sections, use of headings, paragraphing) make the proposed rule easier
to understand? If so, what changes to the format would make the
proposed rule easier to understand?
List of Subjects in 12 CFR Part 1610
Confidential business information, Economic statistics, Reference
rates, Repurchase agreements, Clearing, Central counterparty, Data
collection.
0
For the reasons stated in the preamble, the Office of Financial
Research proposes to add 12 CFR Part 1610 as set forth below:
PART 1610--REGULATORY DATA COLLECTIONS
Subpart A--Collections Generally
Sec.
1610.1 General Authority
1610.2 General Definitions
1610.3 Treatment of Collected Information
1610.4-9 [Reserved]
Subpart B--Specific Collections
Sec.
1610.10 Centrally Cleared Repurchase Agreement Data
Authority: 12 U.S.C. 5343 and 5344
Subpart A--Collections Generally
Sec. 1610.1 General Authority.
The collections under this part are made pursuant to the authority
contained in 12 U.S.C. 5343(a) and (c)(1) and 5344(b).
Sec. 1610.2 General Definitions.
Council means the Financial Stability Oversight Council.
Legal Entity Identifier or LEI for an entity shall mean the global
legal entity identifier maintained for such entity by
[[Page 31909]]
a utility accredited by the Global LEI Foundation or by a utility
endorsed by the Regulatory Oversight Committee that satisfies the
standards implemented by the Global LEI Foundation. As used in this
definition:
(1) Regulatory Oversight Committee means the Regulatory Oversight
Committee (of the Global LEI System), whose charter was set forth by
the Finance Ministers and Central Bank Governors of the Group of Twenty
and the Financial Stability Board, or any successor thereof; and
(2) Global LEI Foundation means the not-for-profit organization
organized under Swiss law by the Financial Stability Board in 2014, or
any successor thereof.
Office means the U.S. Department of the Treasury's Office of
Financial Research.
Sec. 1610.3 Treatment of Collected Information.
The Office will treat any financial transaction data or position
data submitted to the Data Center under this part in accordance with
the relevant provisions of law, including 12 U.S.C. 5343(b) and
5344(b).
Sec. 1610.4-9 [Reserved]
Subpart B--Specific Collections
Sec. 1610.10 Centrally-Cleared Repurchase Agreement Data.
(a) Definitions.
Central counterparty means a clearing agency that interposes itself
between the counterparties to transactions, acting functionally as the
buyer to every seller and the seller to every buyer.
Clearing agency has the same meaning as set forth in 15 U.S.C.
78c(a)(23).
Covered reporter means any central counterparty for repurchase
agreement transactions that meets the criteria set forth in Paragraph
(b)(2); provided, however, that any covered reporter shall cease to be
a covered reporter only if it does not meet the dollar threshold
specified in Paragraph (b)(2) for at least four consecutive calendar
quarters.
General collateral trade means a repurchase agreement transaction
in which the trade reported to the central counterparty is for a
category of securities as opposed to a specific security.
Repurchase agreement transaction means an agreement of a
counterparty to transfer securities to another counterparty in exchange
for the receipt of cash, and the simultaneous agreement of the former
counterparty to later reacquire the same securities (or any
subsequently substituted securities) from that same counterparty in
exchange for the payment of cash; or an agreement of a counterparty to
acquire securities from another counterparty in exchange for the
payment of cash, and the simultaneous agreement of the former party to
later transfer back the same securities (or any subsequently
substituted securities) to the latter counterparty in exchange for the
receipt of cash.
Specific-security trade means a repurchase agreement transaction
where the trade as reported to the central counterparty is for a
mutually agreed upon specific security.
(b) Purpose and Scope. (1) Purpose: The purpose of this data
collection is to require the reporting of certain information to the
Office about repurchase agreement transactions cleared through a
central counterparty. The information will be used by the Office to
support the Council and member agencies by facilitating financial
stability monitoring including research consistent with support of the
Council and its member agencies and for the publication of alternative
reference rates.
(2) Scope of Application: Reporting under this Section is required
by any central counterparty for repurchase agreement transactions whose
average daily total open commitments in repurchase agreement contracts
(gross cash positions prior to netting) across all services over all
business days during the prior calendar quarter is at least $50
billion.
(c) Data Required. (1) Covered reporters shall report trade and
collateral information on all repurchase agreement transactions,
subject to Paragraph (c)(2), in accordance with the prescribed
reporting format in this section.
(2) Covered reporters shall only report trade and collateral
information with respect to any repurchase agreement transaction for
which there is a current or future delivery obligation as of the file
observation date, including forward-starting transactions.
(3) Covered reporters shall submit the following data elements for
all general collateral transactions:
Table 1--General Collateral Trades
------------------------------------------------------------------------
Data element Explanation
------------------------------------------------------------------------
File Observation Date........ The observation date of the file
(typically one business day before the
day the file is submitted).
Covered Reporter LEI......... The Legal Entity Identifier of the
covered reporter.
Transaction ID............... Respondent-generated unique transaction
identifier.
Submission Timestamp......... Time that trade is first submitted to
clearing service.
Match Timestamp.............. Time that trade is matched by clearing
service.
Securities Asset Class Asset class identifier.
Identifier.
Securities Asset Class Type of securities identifier used.
Identifier Type.
Cash Provider LEI............ The Legal Entity Identifier of the cash
provider.
Cash Provider Direct Clearing The Legal Entity Identifier of the direct
Member LEI. clearing member through which the cash
provider accessed the clearing service.
Securities Provider LEI...... The Legal Entity Identifier of the
securities provider.
Securities Provider Direct The Legal Entity Identifier of the direct
Clearing Member LEI. clearing member through which the
securities provider accessed the
clearing service.
Broker LEI................... The Legal Entity Identifier of the
broker.
Start Date................... The start date of the repurchase
agreement.
End Date..................... The date the repurchase agreement
matures.
Rate......................... The repurchase agreement rate, expressed
as an annual percentage rate on an
actual/360-day basis.
Principal.................... The amount of cash borrowed or lent.
Optionality.................. The type of optionality, if any, in the
repurchase agreement.
Minimum Maturity............. The earliest possible date on which the
transaction could end in accordance with
its contractual terms (taking into
account optionality).
------------------------------------------------------------------------
[[Page 31910]]
(4) Covered reporters shall submit the following data elements on
the collateral delivered against net general collateral exposures for
all general collateral transactions:
Table 2--General Collateral Net Exposure
------------------------------------------------------------------------
Data element Explanation
------------------------------------------------------------------------
File Observation Date........ The observation date of the file
(typically one business day before the
day the file is submitted).
Covered Reporter LEI......... The Legal Entity Identifier of the
covered reporter.
Direct Clearing Member LEI... The Legal Entity Identifier of the direct
clearing member of the clearing service.
Transaction Side............. Indicates the side of the transaction:
collateral was received by or delivered
from the covered reporter.
Securities Identifier........ Identifier of securities transferred.
Securities Identifier Type... Type of securities identifier used.
Securities Quantity.......... Par value or quantity (as applicable) of
securities transferred.
Securities Value............. The market value as of most recent
valuation of securities transferred,
including accrued interest.
------------------------------------------------------------------------
(5) Covered reporters shall submit the following data elements for
all specific-security trades:
Table 3--Specific-Security Trades
------------------------------------------------------------------------
Data element Explanation
------------------------------------------------------------------------
File Observation Date........ The observation date of the file
(typically one business day before the
day the file is submitted).
Covered Reporter LEI......... The Legal Entity Identifier of the
covered reporter.
Transaction ID............... Respondent-generated unique transaction
identifier.
Cash Provider LEI............ The Legal Entity Identifier of the cash
provider.
Cash Provider Direct Clearing The Legal Entity Identifier of the direct
Member LEI. clearing member through which the cash
provider accessed the clearing service.
Securities Provider LEI...... The Legal Entity Identifier of the
securities provider.
Securities Provider Direct The Legal Entity Identifier of the direct
Clearing Member LEI. clearing member through which the
securities provider accessed the
clearing service.
Broker LEI................... The Legal Entity Identifier of the
broker.
Submission Timestamp......... Time that trade is first submitted to
clearing service.
Match Timestamp.............. Time that trade is matched by clearing
service.
Start Date................... The start date of the repurchase
agreement.
End Date..................... The date when the repurchase agreement
matures; the close leg settlement date.
Optionality.................. The type of optionality, if any.
Minimum Maturity............. The earliest possible date on which the
transaction could end in accordance with
its contractual terms (taking into
account optionality).
Security Identifier.......... Identifier of pledged security.
Securities Identifier Type... Type of securities identifier used.
Securities Quantity.......... Par value or quantity (as applicable) of
securities transferred.
Substitution Collateral Asset class identifier or no
Identifier. substitution.
Substitution Collateral Type of securities identifier used.
Identifier Type.
Cash Provider Start Leg The amount of cash transferred by the
Amount. cash provider on the open leg of the
transaction.
Securities Provider Start Leg The amount of cash received by the
Amount. securities provider on the open leg of
the transaction.
Cash Provider Rate........... The rate of interest received by the cash
provider, expressed as an annual
percentage rate on an actual/360-day
basis.
Securities Provider Rate..... The rate of interest paid by the
securities provider, expressed as an
annual percentage rate on an actual/360-
day basis.
Cash Provider Close Leg The amount of cash received by the cash
Settlement Amount. provider on the close leg of the
transaction.
Securities Provider Close Leg The amount of cash paid by the securities
Settlement Amount. provider on the close leg of the
transaction.
------------------------------------------------------------------------
(d) Reporting Process and Collection Agent. The Office may
designate a collection agent for the data reporting. Covered reporters
shall submit the required data for the previous business day by 6:00
a.m. Eastern time on the following business day.
(e) Compliance. (1) Any central counterparty that is a covered
reporter as of the effective date of this Section shall comply with the
reporting requirements pursuant to this Section 60 days after the
effective date of this Section. Any such covered reporter's first
submission shall be submitted on the first business day after such
compliance date.\1\
---------------------------------------------------------------------------
\1\ For example, if this Section becomes effective on March 15,
a central counterparty that meets the dollar threshold specified in
Paragraph (b)(2) for the calendar quarter ending the previous
December 31 will be required to submit its first report on the first
business day after May 14.
---------------------------------------------------------------------------
(2) Any central counterparty that becomes a covered reporter after
the effective date of this Section shall comply with the reporting
requirements pursuant to this Section on the first
[[Page 31911]]
business day of the third calendar quarter following the calendar
quarter in which such central counterparty meets the dollar threshold
specified in Paragraph (b)(2).\2\
---------------------------------------------------------------------------
\2\ For example, a central counterparty that meets the dollar
threshold specified in Paragraph (b)(2) in a calendar quarter ending
March 31 will become a covered reporter subject to the reporting
requirements pursuant to this Section on the following October 1 and
will be required to submit its first report on that date.
Kenneth J. Phelan,
Acting Director, Office of Financial Research.
[FR Doc. 2018-14706 Filed 7-9-18; 8:45 am]
BILLING CODE 4810-25-P-P
