Collection of Non-Centrally Cleared Bilateral Transactions in the U.S. Repurchase Agreement Market, 1154-1170 [2022-28615]
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Federal Register / Vol. 88, No. 5 / Monday, January 9, 2023 / Proposed Rules
Training of Individuals Handling Wild
or Exotic Animals
We are also contemplating adding
regulations regarding the training of
licensees and staff of exhibitors who
handle Category 1 and 2 animals at any
time (including, but not limited to,
handling during public contact
activities). We welcome comments
regarding training requirements that
licensed exhibitors should be required
to meet. We are particularly interested
in comments regarding the nature of
training that currently exists in the
absence of APHIS requirements,
including, but not limited to, the
required duration and content of
training, any particular training
requirements for exhibitors who handle
particular categories or species of
animals, any differences in training
requirements based on the extent or
nature of the employee or volunteer’s
interaction with the animal, and any
challenges that may exist in obtaining
the necessary training. We are also
seeking public comment on the costs
that could be associated with training, if
we were to require it, including the
length of time that would be required to
complete the training.
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Environmental Enrichment for Animals
As noted earlier, the regulations
currently only contain requirements for
the environmental enrichment of nonhuman primates and marine mammals.
We are contemplating adding regulatory
requirements to address species-specific
environmental enrichment for all
regulated animals. Enrichments may
address the psychological needs of
species known to exist in social groups;
species-specific feeding, foraging, and
food acquisition behaviors; and
enclosure space, lighting, and design
that allow for species-typical behaviors.
Environmental enrichment
requirements could be implemented as
performance standards, and licensees
and registrants would be able to use
their own expertise to determine the
specific measures that they would
implement to meet the proposed
requirements. If this approach were
adopted, we would require licensees
and registrants to develop and
implement a written plan specifying the
measures that they would take to
provide for the environmental
enrichment of the animals in their care
that would be signed and approved by
an attending veterinarian and made
available to APHIS officials upon
request. We anticipate that the licensee/
registrant would be required to monitor
the plan on an ongoing basis in order to
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ensure compliance with the plan and to
make adjustments if warranted.
We are seeking comment on this
approach to regulating environmental
enrichment for regulated animals.
Particularly, we are interested in
receiving comments on the following
questions:
• What, if any, general environmental
enrichments should be required for all
species?
• What environmental enrichments
addressing psychological needs should
be required for social species (in general
or for particular species)?
• What environmental enrichments
addressing natural feeding, foraging,
and food acquisition behaviors should
be required for animals in general, for
certain taxa of animals, or for particular
species?
• What environmental enrichments
addressing enclosure space, lighting,
and design to allow for species-typical
behaviors should be required for
animals in general, for certain taxa of
animals, or for particular species?
• Are there other components or
types of environmental enrichments we
should consider when developing
environmental enrichment requirements
for certain taxa of animals or for
particular species?
• If we choose to require a written
plan, what specific requirements should
the attending veterinarian consider
when reviewing and/or approving the
written plan?
• If environmental enrichment
requirements were presented as
performance standards, what guidance
could APHIS provide to assist licensees
and registrants to meet the performance
standards?
• What direct costs may be associated
with providing environment enrichment
for the potentially affected animals in
each category?
• Are there any reasonably
foreseeable indirect costs (e.g.,
opportunity costs or overhead) that stem
from these direct costs?
Environmental Impacts
APHIS seeks public comment on
whether the changes being considered
may require the preparation of an
environmental assessment or
environmental impact statement
pursuant to the National Environmental
Policy Act (NEPA). Comments will help
inform APHIS as to the applicability of
NEPA to modifications to the
regulations regarding the handling of
wild or exotic animals and
environmental enrichment for animals.
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Economic Considerations
APHIS seeks public comment on
economic cost considerations for
businesses, and in particular small
businesses, associated with the
amendments being considered.
Specifically, we invite public comments
on the number of entities that would be
potentially impacted by the
amendments to the regulations should
we proceed to a proposed rule, and the
costs associated with these
amendments, and detailed comments on
any additional costs that could be
associated with the amendments to the
regulations.
We welcome all comments on the
issues outlined above and encourage the
inclusion of supporting data.
Authority: 7 U.S.C. 2131–2159; 7 CFR 2.22,
2.80, and 371.7.
Done in Washington, DC, this 21st day of
December, 2022.
Jennifer Moffitt,
Under Secretary for Marketing and Regulatory
Programs.
[FR Doc. 2023–00021 Filed 1–6–23; 8:45 am]
BILLING CODE 3410–34–P
DEPARTMENT OF THE TREASURY
12 CFR Part 1610
Collection of Non-Centrally Cleared
Bilateral Transactions in the U.S.
Repurchase Agreement Market
Office of Financial Research,
Department of the 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 non-centrally
cleared bilateral transactions in the U.S.
repurchase agreement (repo) market.
This proposed collection would require
daily reporting to the Office by certain
brokers, dealers, and other financial
companies with large exposures to the
non-centrally cleared bilateral repo
market. The collected data would be
used to support the work of the
Financial Stability Oversight Council
(the Council), its member agencies, and
the Office to identify and monitor risks
to financial stability.
DATES: Comments must be received by
60 days after the date of publication in
the Federal Register.
ADDRESSES: You may submit comments
by any of the following methods:
• Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
SUMMARY:
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Federal Register / Vol. 88, No. 5 / Monday, January 9, 2023 / Proposed Rules
• Mail: Michael Passante, Chief
Counsel, Office of Financial Research,
717 14th Street NW, Washington, DC
20220.
Instructions: 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 at https://
www.regulations.gov, including any
personal information provided. For
access to the docket to read background
documents or comments received, visit
https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: John
Zitko, Senior Counsel, OFR, (202) 594–
9658, john.zitko@ofr.treasury.gov; or
Sriram Rajan, Associate Director of
Financial Markets, OFR, (202) 594–
9658, sriram.rajan@ofr.treasury.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
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I. Executive Summary
II. Repurchase Agreement Market
Background
a. Structure of the Repurchase Agreement
Market
b. Importance of Repurchase Agreement
Markets and Associated Vulnerabilities
c. Characteristics of the Non-Centrally
Cleared Bilateral Repurchase Agreement
Market That Underlie Financial Stability
Risks
III. Data Available on U.S. Repurchase
Agreement Activity
a. Tri-Party Repurchase Agreements
b. Centrally Cleared Repurchase
Agreements
c. Non-Centrally Cleared Bilateral
Repurchase Agreements
IV. Justification for Proposed Collection
a. Collection of Non-Centrally Cleared
Bilateral Repurchase Agreement Data
b. Uses of the Data Collection
c. Legal Authority
V. Collection Design
a. Scope of Application
b. Scope of Transactions
c. Information Required
ISO 20022
Legal Entity Identifier Usage
Unique Transaction Identifier Usage
Collateral Information
Date and Tenor Information
Trade Direction, Trade Size, and Rate
Risk Management
Trade Venue
d. 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 non-centrally
cleared bilateral transactions in the U.S.
repurchase agreement (repo) market
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(proposed collection). This proposed
collection would require reporting by
certain U.S. covered reporters for repo
transactions that are not centrally
cleared and have no tri-party custodian.
This proposed collection would
enhance the ability of the Financial
Stability Oversight Council (Council),
Council member agencies, and the
Office to identify and monitor risks to
financial stability. Under the DoddFrank 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. In a 2022 statement
on nonbank financial intermediation,
the Council supported a
recommendation made by the Council’s
Hedge Fund Working Group that the
Office consider ways to collect noncentrally cleared bilateral repo data.1
Additionally, in July 2022 the Office
consulted with the Council on efforts to
collect non-centrally cleared bilateral
repo data, including work on this
proposed rule.2 As a part of this
consultation, the Office described the
structure and objectives of a pilot study
of the non-centrally cleared bilateral
repo market conducted in the summer
of 2022. This pilot study critically
informed the Office’s collection efforts.
This proposed collection would
require reporting on non-centrally
cleared bilateral repo transactions,
which comprise the majority of repo
activity by several key categories of
institutions such as primary dealers and
hedge funds.3 In line with the Council’s
discussions on July 28, 2022, this
proposed collection would provide
visibility and transparency into a crucial
segment of the U.S. repo market and, as
explained below, the one remaining
segment for which transaction-level data
is not available to regulators.
Collection of information on the noncentrally cleared bilateral repo market is
critical to the understanding of financial
stability risks. The data proposed to be
collected under this proposal will
enable the Office to monitor risks in this
1 Financial Stability Oversight Council.
‘‘Statement on Nonbank Financial Intermediation.’’
Press Release, February 4, 2022: FSOC. https://
home.treasury.gov/news/press-releases/jy0587.
2 Financial Stability Oversight Council. Meeting
minutes. FSOC, July 28, 2022, pg. 7. https://
home.treasury.gov/system/files/256/FSOC_
20220728_Minutes.pdf.
3 Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and
Sharon Y. Ross. 2022. ‘‘Non-centrally Cleared
Bilateral Repo.’’ OFR Blog. Office of Financial
Research. August 24, 2022. https://
www.financialresearch.gov/the-ofr-blog/2022/08/
24/non-centrally-cleared-bilateral-repo/.
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market. Further, as the Council’s duties
relate to monitoring and responding to
potential financial stability risks, the
proposed collection supports the
Office’s statutory mandate to support
the work of the Council.
II. Repurchase Agreement Market
Background
The multitrillion-dollar market for
repo transactions allows financial
institutions to lend or borrow cash,
usually overnight, using securities as
collateral. A repo transaction is the sale
of assets, combined with an agreement
to repurchase the assets at a 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 lender 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 to
finance securities holdings or to borrow
specific securities for use. Central banks
also use repos as an important monetary
policy tool.4 The interest rate on repo
borrowing is calculated based on the
difference between the sale price and
the repurchase price of the assets
underlying the repo.
Cash lenders typically require overcollateralization from borrowers to
protect themselves against a decline in
the value of the securities subject to
repurchase. In the non-centrally cleared
bilateral repo market, the value of the
securities pledged as collateral is
discounted, which is referred to as a
haircut. Margin requirements provide
additional buffers for the variation in
the value of collateral. Initial margin is
a buffer meant to cover the costs of early
termination of repo contracts. Drawn
upon contingently, initial margin differs
from a second type of periodically
adjusted margin. If the market value of
the collateral falls during the life of the
repo, the cash lender has the right to
call on its counterparty to deliver
additional collateral, known as variation
margin, so that the loan remains overcollateralized against future adverse
price movements.
Repo transaction documentation
specifies the agreement terms, including
the types of securities that are
acceptable to the cash lender as
collateral, and risk management
4 Logan, Lorie K. ‘‘Operational Perspectives on
Monetary Policy Implementation: Panel Remarks on
‘The Future of the Central Bank Balance Sheet.’ ’’
Speech, Policy Conference on Currencies, Capital,
and Central Bank Balances, Stanford University,
Stanford, California, May 4, 2018. https://
www.newyorkfed.org/newsevents/speeches/2018/
log180504.
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Federal Register / Vol. 88, No. 5 / Monday, January 9, 2023 / Proposed Rules
protocols. These protocols include
haircuts and margin requirements,
which address the costs related to
variation in collateral value underlying
repo transactions. Participants may have
arrangements with each other to offset
repo borrowing and lending agreements
according to certain conventions. These
arrangements, referred to as netting
practices, relate to risk management
considerations and the economic terms
on which repo transactions are
negotiated. Firms may employ netting
practices across asset classes and
instrument types outside of repo
markets, on a portfolio basis. Stated
differently, a repo market participant
may manage netting practices on a repo
counterparty across a range of financial
exposures. Alternatively, a pair of
counterparties may also manage their
netting practices only within the context
of repo transactions.
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 floating basis. There
are also open-tenor repos, which do not
have a fixed maturity and are instead
renewed by mutual agreement. A lender
and a borrower may also write a repo
contract to give the option to recall cash
or collateral early or extend trades,
especially for longer-tenor agreements
with less-liquid collateral.
a. Structure of the Repurchase
Agreement Market
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The repo market can be divided into
four segments based on whether the
transactions are cleared by a central
counterparty and whether a tri-party
custodian is used to settle transactions.5
Central counterparties novate trades
onto their balance sheets, interposing a
common counterparty for all
transactions that allows participants to
better manage counterparty risk. Central
counterparties also provide netting
benefits for both balance sheet and
settlement purposes. Tri-party
custodians are banks that provide
collateral valuation, margining, and
management services to the
counterparties in a repurchase
agreement. The tri-party custodian
provides back-office support to both
parties in the trade by settling the repo
on its books and confirming that the
5 Kahn, R. Jay, and Luke Olson. ‘‘Who Participates
in Cleared Repo?’’ Brief no. 21–01, Washington, DC:
Office of Financial Research, 2021. For more
background, see Baklanova, Viktoria, Adam
Copeland, and Rebecca McCaughrin. ‘‘Reference
Guide to U.S. Repo and Securities Lending
Markets.’’ Working Paper no. 15–17, Washington,
DC: Office of Financial Research, U.S. Department
of the Treasury, 2015.
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terms of the repo, such as eligible
collateral and haircuts, are met.
The four segments of the repo market
span the different combinations of
centrally cleared and non-centrally
cleared, tri-party and bilateral. For three
of these segments, data are currently
collected by regulators. For the U.S.
non-centrally cleared tri-party repo
market, Bank of New York Mellon
serves as the tri-party custodian and
transaction-level data is collected under
the supervisory authority of the Federal
Reserve Board of Governors (Federal
Reserve Board). For the centrally cleared
tri-party repo market and bilateral repo
market, the Fixed Income Clearing
Corporation (FICC) serves as the central
counterparty. The centrally cleared
bilateral repo market is provided by
FICC’s DVP Service and includes a
sponsored service, which offers eligible
clients the ability to lend cash or
eligible collateral via FICC-cleared
delivery-versus-payment (DVP) repo
transactions in U.S. Treasury and
agency securities on an overnight and
term basis settled on a DVP basis.6 The
centrally cleared tri-party repo market is
operated through FICC’s GCF Repo
Service, which also includes the
Centrally Cleared Institutional Tri-Party
Service, through which institutional
counterparties (other than investment
companies registered under the
Investment Company Act of 1940) can
participate as cash lenders in general
collateral finance repo on a specifiedcounterparty basis. In 2021, FICC also
began a cleared tri-party service for
sponsored members known as the
Sponsored General Collateral Service.7
For all centrally cleared segments, data
is collected through the Office’s cleared
repo collection, which has given
financial regulators greater visibility
into this segment of repo activity.8
The final segment of the market is the
non-centrally cleared bilateral repo
market. This segment has no central
counterparty or tri-party custodian, and
all trades within this segment are agreed
to bilaterally and are settled on a DVP
basis. Unlike other segments of the
market, less information is known to
6 Depository Trust and Clearing Corporation.
‘‘Deposit Trust and Clearing Corporation Sponsored
Service.’’ Fact sheet, page 1: 2018. https://
www.dtcc.com/-/media/Files/Downloads/ClearingServices/FICC/GOV/Sponsored-Membership-FactSheet.pdf, page 1.
7 Depository Trust and Clearing Corporation.
‘‘DTCC’s FICC Launches New Sponsored General
Collateral Service as BNY Mellon, Federated
Hermes and J.P. Morgan Securities Execute First
Triparty Repo Trades.’’ Press release, September 7,
2021: DTCC. https://www.dtcc.com/news/2021/
september/07/dtccs-ficc-launches-new-sponsoredgeneral-collateral-service.
8 12 CFR part 1610.
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financial regulators about the noncentrally cleared bilateral segment.
While some aggregate data are available
from various regulatory filings, there is
no transaction-level collection covering
the market. However, research by the
Office finds that this segment represents
60% of total repo lending by primary
dealers and 37% of total repo
borrowing.9
This proposed collection is designed
to fill a critical gap in regulators’
information on the repo market by
collecting data on the non-centrally
cleared bilateral repo market, the last
segment for which regulators do not
have a transaction-level data source.
The need for a collection of data on this
segment of the market to assist
policymakers’ understanding of how the
aggregate repo market operates has been
recognized by the Council since 2016,
when it first called for the Office to
establish a permanent repo data
collection.10 This lack of visibility was
felt acutely following recent episodes in
repo markets, which are described in
greater detail below. These episodes
included a spike in repo market rates in
September 2019 and events related to
the use of repo with respect to Treasury
collateral in March 2020. For both of
these events, substantial portions of
activity in these crucial funding markets
could not be observed. In the wake of
these episodes of stress, market
participants and regulators have pointed
to this segment as a critical blind spot
in a market that plays a key role in
financial stability.11
9 Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and
Sharon Y. Ross. 2022. ‘‘Non-centrally Cleared
Bilateral Repo.’’ OFR Blog. Office of Financial
Research. August 24, 2022. https://
www.financialresearch.gov/the-ofr-blog/2022/08/
24/non-centrally-cleared-bilateral-repo/. See also
Infante, Sebastian, Lubomir Petrasek, Zack Saravay,
and Mary Tian. 2022. ‘‘Insights from revised Form
FR2004 into primary dealer securities financing and
MBS activity.’’ FEDS Notes. Federal Reserve Board.
August 5, 2022. https://www.federalreserve.gov/
econres/notes/feds-notes/insights-from-revisedform-fr2004-into-primary-dealer-securitiesfinancing-and-mbs-activity-20220805.html.
10 Financial Stability Oversight Council. 2016
Annual Report page 14, Washington, DC: FSOC,
2016. https://home.treasury.gov/system/files/261/
FSOC-2016-Annual-Report.pdf.
11 Logan, Lorie K. ‘‘Treasury Market Liquidity and
Early Lessons from the Pandemic Shock.’’ Remarks,
Brookings-Chicago Booth Task Force on Financial
Stability Meeting, 2020; International Monetary
Fund. 2020. ‘‘United States: Financial Sector
Assessment Program Technical Note: Risk
Oversight and Systemic Liquidity;’’ Liang, Nellie,
and Pat Parkinson. ‘‘Enhancing Liquidity of the U.S.
Treasury Market Under Stress.’’ Working Paper no.
72, Washington, DC: Brookings Hutchins Center on
Fiscal and Monetary Policy, 2020; BlackRock. 2020.
‘‘Lessons from COVID–19: Market Structure
Underlies Interconnectedness of the Financial
Market Ecosystem.’’ BlackRock ViewPoint; Bank
Policy Institute. 2020. ‘‘Necessary Dimensions of a
Holistic Review of the Meltdown of U.S. Bond
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b. Importance of Repurchase Agreement
Markets and Associated Vulnerabilities
All four segments of the multitrilliondollar repo market allow financial
institutions to lend or borrow cash,
usually overnight, with securities as
collateral. 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 U. S.
Research has identified this market as
subject to risks akin to bank runs that
have systemic consequences.12 While
more recent distress in repo markets is
discussed below, the most salient
example of run risks in repo markets
occurred during the Global Financial
Crisis. In 2008–09, runs on repos
contributed to the financial crisis.
Distressed financial institutions reliant
on borrowing through repo markets
found their counterparties unwilling to
extend credit. Similar to bank runs from
earlier times, counterparties reduced the
amounts lent, increased rates at which
they lent, and reduced maturities of
repo contracts available to distressed
financial institutions. These events led
to the Federal Reserve Board’s
collection of data on the non-centrally
cleared tri-party repo market. Gaps in
data and understanding yet remained. In
support of its proposed cleared repo
rule, the Office laid out a framework for
understanding activity in the repo
market and associated vulnerabilities
across five functions that repo provides:
a low-risk cash investment,
monetization of assets, transformation of
collateral, facilitation of hedging, and
more generally as a support for
secondary market liquidity and pricing
efficiency.13 These functions remain
today, as do the associated
vulnerabilities.
These underlying vulnerabilities may
generally be considered in the following
manner. As a deposit substitute, repo is
subject to runs by cash lenders, which
may withdraw funds suddenly. This
occurred in 2008 as fears of Bear
Stearns’ collapse led to a run against its
repo borrowing secured by high-quality
collateral.14 As a means of monetizing
Markets in March;’’ Citadel Securities. 2021.
‘‘Enhancing Competition, Transparency, and
Resiliency in U.S. Financial Markets;’’ Feldberg,
Greg. ‘‘Fixing financial data to assess systemic
risk.’’ Brookings Economic Studies, 2020;
‘‘Brookings Hutchins Center on Fiscal and
Monetary Policy. 2021. ‘‘Report of the Task Force
on Financial Stability.’’
12 Gorton, Gary B., and Andrew Metrick. 2012.
‘‘Securitized Banking and the Run on Repo.’’
Journal of Financial Economics (June): pg. 425–451.
13 83 FR 31896, 31897–31898 (July 10, 2018).
14 The maturity of Bear Stearns’ repo funding
deteriorated over several months before the firm
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assets, the repo market is vulnerable to
changes in the valuation of securities
and can transmit stress into the market
for securities used as collateral through
fire sales of the assets as haircuts
increase. This occurred in 2007, as
haircuts rose on private-label mortgagebacked securities, forcing a cycle of fire
sales and deleveraging that further
undermined this market.15 As a means
for the transformation of collateral, the
repo market is vulnerable to difficulties
in sourcing securities and can transmit
stress to leveraged traders who enforce
basic arbitrage relationships across
assets, allowing for the propagation of
shocks throughout the securities
financing, derivatives, and securities
markets. Because repurchase agreements
are used to hedge financial market risks,
a loss of function in the repo market can
make it more difficult for investors and
financial institutions to protect
themselves from risks. Finally, because
the repo market is a critical piece of
secondary capital markets, stress in the
repo market can easily translate into
broader dysfunction and liquidity
spirals in secondary markets, as large
portfolios of longer-term securities in
the hands of levered entities are funded
daily in the repo market, and an
inability to roll these securities over
could be disastrous for secondary
markets.
Events in late 2019 and early 2020
only served to reinforce the systemic
importance of the repo market and the
vulnerabilities it faces. On September
17, 2019, overnight repo rates spiked to
5.3% from 2.4% the previous day.16
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
also Bank for International Settlements. 2013.
‘‘Liquidity Stress Testing: A Survey of Theory,
Empirics and Current Industry and Supervisory
Practices.’’ October 2013. https://www.bis.org/publ/
bcbs_wp24.htm.
15 Gorton, Gary B. ‘‘Information, Liquidity, and
the (Ongoing) Panic of 2007.’’ Working Paper no.
14649, Cambridge, Massachusetts: National Bureau
of Economic Research, January 2009. https://
www.nber.org/papers/w14649; and Iyer, Rajkamal,
and Marco Macchiavelli. 2017. ‘‘Primary Dealers’
Behavior During the 2007–08 Crisis: Part II,
Intermediation and Deleveraging.’’ FEDS Notes.
Federal Reserve Board. June 28, 2017. https://
www.federalreserve.gov/econres/notes/feds-notes/
primary-dealers-behavior-during-the-2007-08-crisispart-ii-intermediation-and-deleveraging20170628.htm.
16 Afonso, Gara, Marco Cipriani, Adam Copeland,
Anna Kovner, Gabriele La Spada, and Antoine
Martin. 2021. ‘‘The Market Events of MidSeptember 2019.’’ Economic Policy Review, Federal
Reserve Bank of New York, vol. 27, no. 2 (August):
1–26. https://www.newyorkfed.org/research/epr/
2021/epr_2021_market-events_afonso.html; Anbil,
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Though the size of this rate increase was
extraordinary, it was only one of a
number of similar episodes of sudden
spikes in the preceding years.17 Several
studies have found these spikes were
caused by occasions when the cash
available to the repo market was too
small relative to the demand for
funding, illustrating that demand for
repo funding can be very inelastic, with
rates suddenly rising in response to
small changes in available funding.18
These episodes highlight the
vulnerabilities that come from repo as a
deposit substitute exposed to sudden
withdrawals, as well as the risks
involved in rolling over large portfolios
of securities through repo. Moreover,
the 2019 spike in the repo market
propagated into unsecured markets,
including foreign exchange markets, the
Federal funds market, and the market
for cash Treasuries, highlighting the
ability of shocks originating in the repo
market to propagate across the financial
system.19
In March 2020, during the initial
phases of the COVID–19 crisis, the repo
market again played an important role
during a general breakdown in Treasury
market functioning. Early that month,
dealers and other intermediaries were
overwhelmed by Treasury sales as part
of a generalized ‘‘dash for cash’’ from
Sriya, Alyssa Anderson, and Zeynep Senyuz. 2021.
‘‘Are Repo Markets Fragile? Evidence from
September 2019.’’ Finance and Economics
Discussion Series 2021–028. FEDS Notes. Federal
Reserve Board. https://doi.org/10.17016/
FEDS.2021.028.
17 Copeland, Adam, Darrell Duffie, and Yilin
Yang. ‘‘Reserves Were Not So Ample After All.’’
Working Paper no. 29090, Cambridge,
Massachusetts: National Bureau of Economic
Research, 2021.
18 The September 17 spike in particular appears
to have been the result of a confluence of factors
that restricted the supply of cash and increased the
demand for cash, including a Treasury settlement,
withdrawals from money market funds due to a tax
deadline, and a low level of reserves. See sources
in footnote 14.
19 Tran, H. 2020. ‘‘EM banks exposed to stress in
FX swaps, a spillover from U.S. repo markets.’’
Financial Times (January 8, 2020). https://
www.ft.com/content/5f8237cf-0e90-4f7d-9a0de4430f6fc7a1; Afonso, Gara, Marco Cipriani, Adam
Copeland, Anna Kovner, Gabriele La Spada, and
Antoine Martin. 2021. ‘‘The Market Events of MidSeptember 2019.’’ Economic Policy Review, Federal
Reserve Bank of New York, vol. 27, no. 2 (August):
1–26. https://www.newyorkfed.org/research/epr/
2021/epr_2021_market-events_afonso.html;
Department of the Treasury, Federal Reserve Board,
Federal Reserve Bank of New York, Securities and
Exchange Commission, Commodity Futures Trading
Commission. ‘‘Recent Disruptions and Potential
Reforms in the U.S. Treasury Market: A Staff
Progress Report.’’ Washington, DC: Department of
the Treasury, Federal Reserve Board, Federal
Reserve Bank of New York, Securities and Exchange
Commission, Commodity Futures Trading
Commission, 2021.
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mutual funds and foreign investors.20
Research suggests that these sales
reduced large financial institutions’
capacity to intermediate in the repo
market given regulatory constraints on
their balance sheets.21 The pullback of
these institutions from repo market
intermediation was associated with
increasing volatility and spreads in the
repo market, again providing an
example of the risks from repo as a
deposit substitute.22 Moreover, rising
rates likely contributed to sales of
Treasuries by leveraged funds in
arbitrage trades that rely on repo
financing, illustrating risks associated
with monetization of assets and the
transformation of collateral.23 In order
to address distress within repo markets,
the Federal Reserve expanded its
20 Group of Thirty Working Group on Treasury
Market Liquidity U.S. Treasury Markets: Steps
Toward Increased Resilience. Washington, DC:
Group of Thirty, 2021. https://group30.org/
publications/detail/4950; Liang, Nellie, and Pat
Parkinson. ‘‘Enhancing Liquidity of the U.S.
Treasury Market Under Stress.’’ Working Paper No.
72, Washington, DC: Brookings Hutchins Center for
Fiscal and Monetary Policy, 2020; Financial
Stability Board. ‘‘Holistic Review of the March
Market Turmoil.’’ Basel, Switzerland, FSB, 2020;
Financial Stability Oversight Council. 2020 Annual
Report, Washington, DC: FSOC, 2020; Office of
Financial Research. 2020 Annual Report,
Washington, DC: OFR, 2020; Duffie, Darrell. 2020.
‘‘Still the world’s safe haven? Redesigning the U.S.
Treasury market after the COVID–19 crisis.’’
Brookings Hutchins Center for Fiscal and Monetary
Policy. June 22, 2020. https://www.brookings.edu/
research/still-the-worlds-safe-haven/; Barth, Daniel,
and R. Jay Kahn. ‘‘Hedge Funds and the Treasury
Cash-Futures Disconnect.’’ Working Paper no. 21–
01, Washington, DC: Office of Financial Research,
2021.
21 Financial Stability Board. Holistic Review of
the March Market Turmoil. Basel, Switzerland,
FSB, 2020; He, Zhiguo, Stefan Nagel, and Zhaogang
Song. 2022. ‘‘Treasury inconvenience yields during
the COVID–19 crisis.’’ Journal of Financial
Economics, vol. 143, no. 1: pg. 57–79.
22 Financial Stability Board. Holistic Review of
the March Market Turmoil. Basel, Switzerland,
FSB, 2020; He, Zhiguo, Stefan Nagel, and Zhaogang
Song. 2022. ‘‘Treasury inconvenience yields during
the COVID–19 crisis.’’ Journal of Financial
Economics vol. 143, no. 1: pg. 57–79; Office of
Financial Research. 2020 Annual Report.
Washington, DC: OFR, 2020; Clark, Kevin, Antoine
Martin, and Timothy Wessel. 2020. ‘‘The Federal
Reserve’s Large-Scale Repo Program.’’ Liberty Street
Economics. Federal Reserve Bank of New York.
August 3, 2020; Barth, Daniel, and R. Jay Kahn.
‘‘Hedge Funds and the Treasury Cash-Futures
Disconnect.’’ Working Paper no. 21–01,
Washington, DC: Office of Financial Research, 2021.
23 Aramonte, Sirio, Andreas Schrimpf, and Hyun
Song Shin. ‘‘Non-bank financial intermediaries and
financial stability.’’ Working Paper no. 972, Basel,
Switzerland: Bank for International Settlements,
2021; Barth, Daniel, and R. Jay Kahn. ‘‘Hedge Funds
and the Treasury Cash-Futures Disconnect.’’
Working Paper no. 21–01, Washington, DC: Office
of Financial Research, 2021; Kruttli, Mathias,
Phillip J. Monin, Lubomir Petrasek, and Sumudu
W. Watugala. ‘‘Hedge Fund Treasury Trading and
Funding Fragility: Evidence from the COVID–19
Crisis.’’ Finance and Economics Discussion Series
2021–038, Board of Governors of the Federal
Reserve System, 2021.
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overnight and term repo facilities,
rapidly bringing down rates in overnight
repo and gradually lowering rates in
term repo.24
Both of these episodes illustrate that
the repo market is still subject to the
vulnerabilities highlighted previously
and perhaps has become more central to
the functioning of U.S. securities and
short-term funding markets. These
vulnerabilities are present to a greater or
lesser extent across the four different
segments of the repo market. In
addition, certain features of the noncentrally cleared bilateral repo market
may exacerbate the risks in other
segments of the market.
c. Characteristics of the Non-Centrally
Cleared Bilateral Repurchase Agreement
Market That Underlie Financial
Stability Risks
Several characteristics of the noncentrally cleared bilateral repo market
increase the potential for risks to
financial stability and, thus, the Office’s
interest in collecting data on this
segment of the overall repo market. This
market is largely unobserved by
financial regulators, resulting in data
gaps that limit how well financial
regulators can monitor risks and
vulnerabilities that could affect
financial stability. During a crisis, these
gaps can delay analysis, understanding,
and responses. While market
participants may have access to some
market information, the absence of
inter-dealer brokers and the execution of
trades through unstructured protocols
such as telephone or chat systems
creates challenges for financial
regulators to understand market
structure, market participation, and
distribution of risk in real time. Since
abrupt changes can have financial
stability consequences, addressing data
gaps is of high importance.
It is also important that the Office
more deeply understand collateral risk,
another market characteristic with
implications for financial stability. The
non-centrally cleared bilateral repo
market generally contains riskier
collateral than other market segments,
since cleared markets are limited to
Fedwire-eligible collateral such as
Treasuries and agency bonds. Data from
the Federal Reserve Bank of New York’s
Primary Dealer Statistics show that 95%
of primary dealer repo lending against
24 Barth, Daniel, and R. Jay Kahn. ‘‘Hedge Funds
and the Treasury Cash-Futures Disconnect.’’
Working Paper no. 21–01, Washington, DC: Office
of Financial Research, 2021; Clark, Kevin, Antoine
Martin, and Timothy Wessel ‘‘The Federal Reserve’s
Large-Scale Repo Program.’’ Liberty Street
Economics. Federal Reserve Bank of New York.
August 3, 2020.
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non-Fedwire-eligible collateral
(including asset-backed securities,
corporate debt and other securities) is
conducted through the non-centrally
cleared bilateral repo market. These
collateral types have more risk factors
than those that drive Treasury and
agency bonds. Additionally, noncentrally cleared bilateral repo made up
over 81% of primary dealer lending
against agency collateral, and 100% of
primary dealer lending against agency
commercial mortgage-backed securities
(MBS) and non-MBS debt. Supported by
riskier collateral, the non-centrally
cleared bilateral repo market is
potentially more exposed to the risks
associated with monetizing assets.
The non-centrally cleared bilateral
repo market also has counterparty
complexity that warrants focus. Many
counterparties are institutions that do
not appear in the cleared or tri-party
markets that financial regulators know
more about. It is likely that the noncentrally cleared bilateral market
features a large amount of borrowing by
highly leveraged actors such as hedge
funds.25 Financial regulators may not
have information on the complexity and
extent of hedge fund repo borrowing.
For instance, Long-Term Capital
Management (LTCM), a hedge fund that
failed in 1998, built up large
counterparty exposures through noncentrally cleared bilateral repo.26 Its
repo and reverse-repo transactions were
conducted with 75 different
counterparties, many of which were
reportedly unaware of the fund’s total
exposure.27 These large exposures built
up through repo were a key source of
potential stress from LTCM’s failure, as
liquidations of the underlying collateral
in bankruptcy could have resulted in
significantly depressed prices and
broader disruptions to markets.28
The non-centrally cleared bilateral
repo market is exposed to varying risk
management conventions that require
25 Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and
Sharon Y. Ross. 2022. ‘‘Non-centrally Cleared
Bilateral Repo.’’ August 24, 2022. The OFR Blog.
Office of Financial Research. https://
www.financialresearch.gov/the-ofr-blog/2022/08/
24/non-centrally-cleared-bilateral-repo/.
26 Parkinson, Patrick M. Report on Hedge Funds,
Leverage, and the Lessons of Long-Term Capital
Management. Testimony, U.S. House, May 6, 1999,
Cong., Washington, DC: Federal Reserve Board,
1999. https://www.federalreserve.gov/boarddocs/
testimony/1999/19990506.htm; Dixon, Lloyd,
Noreen Clancy, and Krishna B. Kumar. 2012. Hedge
Funds and Systemic Risk. Santa Monica, California:
RAND Corporation. https://www.jstor.org/stable/
10.7249/j.ctt1q60xr.11.
27 Parkinson, Patrick M. Report on Hedge Funds,
Leverage, and the Lessons of Long-Term Capital
Management. Testimony, U.S. House, May 6, 1999,
Cong., Washington, DC: Federal Reserve Board,
1999.
28 Ibid.
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greater insight. These conventions
include but are not limited to margining
and settlement. For instance, the
variation in margining practices across
competing intermediaries may create
competitive pressures that drive
margins to lower levels than justified by
prudent risk management.29 Similarly,
the Treasury Market Practices Group
found settlement practices vary widely
and expressed concern that ‘‘bespoke
bilateral processes may reflect
differences in the level of understanding
among market participants of the
inherent risks of SFT clearing and
settlement.’’ 30
III. Data Available on U.S. Repurchase
Agreement Activity
As demonstrated during the Global
Financial Crisis and the COVID–19
pandemic, high-quality information is
one of the best tools for identifying the
build-up of risk. While improvements
have been made, especially through the
Office’s collection of cleared repo data,
a full transaction-level picture of all
segments of the U.S. repo market is still
unavailable. This proposed collection
would cover certain non-centrally
cleared bilateral repo transactions,
allowing the Office to gather data on a
mandatory basis on what it estimates to
be a substantial share of the total U.S.
repo market. This proposed collection,
in combination with the Office’s other
repo collections, would provide
visibility and transparency into every
major segment of the U.S. repo market,
in line with the Council’s
recommendations. This section reviews
data provided to regulators on other
segments of the repo market and
describes the pilot collections of repo
data preceding this proposed rule.
a. Tri-Party Repurchase Agreements
The Federal Reserve Board has
supervisory authority over the Bank of
New York Mellon, the major tri-party
custodian bank and, on a mandatory
basis pursuant to its supervisory
authority, collects daily data on
transactions in tri-party repo markets
through the Federal Reserve Bank of
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29 The
Group of Thirty report cited above notes
competitive pressures in the repo market ‘‘driving
haircuts down (sometimes to zero).’’ See also Group
of Thirty Working Group on Treasury Market
Liquidity. U.S. Treasury Markets: Steps Toward
Increased Resilience. Washington, DC: Group of
Thirty, G30, 2021. https://group30.org/publications/
detail/4950.
30 Treasury Market Practices Group. ‘‘TMPG
Releases Updates for Working Groups on Clearing
and Settlement Practices for Treasury SFTs,
Treasury Market Data and Transparency.’’ Press
Release, November 5, 2021.
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New York.31 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 (e.g., the ability to extend or
terminate early), and, if the transaction
includes an option, the minimum notice
period required to exercise it.32
Aggregated data from this collection is
made available through the Federal
Reserve Bank of New York’s reference
rates (including the Secured Overnight
Financing Rate (SOFR); the Broad
General Collateral Rate (BGCR); and the
Tri-Party General Collateral Rate
(TGCR); the Federal Reserve Bank of
New York’s Tri-Party Statistics; and the
Office’s U.S. Repo Markets Data Release.
b. Centrally Cleared Repurchase
Agreements
The Office collects transaction-level
data on cleared repo markets pursuant
to the Office’s rule on cleared repo. For
general collateral repurchase agreements
through FICC’s GCF Repo Service and
the Sponsored General Collateral
Service, the data collected under the
rule include the interest rate; details on
the collateral pledged; the date and time
the transaction is initiated, becomes
effective, and matures; the value of
funds borrowed; the identities of the
counterparties; and the net value and
collateral identifier for collateral
delivered. For specific collateral
repurchase agreements through FICC’s
DVP Service, the data includes the same
fields as well as the broker. For both
these segments, aggregates of the data
are made public through the Federal
Reserve Bank of New York’s reference
rates noted above and the Office’s U.S.
Repo Markets Data Release. In addition,
transaction-level data has been used by
the Office and the Federal Reserve Bank
of New York in briefs and working
papers, as well as to inform regulators
on developments in short-term funding
markets and in the Office’s annual
reports.33
31 The Bank of New York Mellon currently serves
as the sole tri-party custodian in the United States.
See 82 FR 41259, 41260 (August 30, 2017).
32 82 FR 41259, 41260 (August 30, 2017).
33 Briefs and working papers using data from the
Office’s cleared repo collection include Barth,
Daniel, and R. Jay Kahn. ‘‘Basis Trades and
Treasury Market Illiquidity.’’ Brief no. 20–01,
Washington, DC: Office of Financial Research, 2020;
Clark, Kevin, Adam Copeland, R. Jay Kahn, Antoine
Martin, Matthew McCormick, Will Riordan, and
Timothy Wessel. ‘‘How Competitive are U.S.
Treasury Repo Markets?’’ New York, New York:
Liberty Street Economics, Federal Reserve Bank of
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c. Non-Centrally Cleared Bilateral
Repurchase Agreements
Unlike the other three repo market
segments, the wholly bilateral nature of
non-centrally cleared repo means there
is no central source for comprehensive
transaction-level data on activity in this
segment. 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 conducted a pilot
in 2015 in partnership with the Federal
Reserve and the Securities and
Exchange Commission (SEC), to collect
information on both centrally cleared
and non-centrally cleared bilateral repo
transactions. The 2015 pilot gathered
data from a subset of U.S.-based brokers
and dealers. The results and lessons
learned were published in January
2016.34 In order to update and expand
upon the 2015 pilot and address the
Council’s more recent
recommendations, in 2022 the Office
conducted another pilot on the noncentrally cleared bilateral repo market.35
Significant lessons were learned about
the non-centrally cleared bilateral repo
market from both pilots. These have
been incorporated into the design of this
proposed collection, which would
provide data on this final segment of the
market of comparable granularity to
what is collected on tri-party and
cleared repo.
IV. Justification for Proposed Collection
a. Collection of Non-Centrally Cleared
Bilateral Repurchase Agreement Data
The collection of data on the noncentrally cleared bilateral segment of the
repo market marks a significant step in
carrying out the Council’s
recommendation to expand and make
New York, February 18, 2021; Kahn, R. Jay, and
Luke Olson. ‘‘Who Participates in Cleared Repo?’’
Brief no. 21–01, Washington, DC: Office of
Financial Research, 2021; Clark, Kevin, Adam
Copeland, R. Jay Kahn, Antoine Martin, Mark E.
Paddrik, and Benjamin Taylor. ‘‘Intraday Timing of
General Collateral Repo Markets,’’ Liberty Street
Economics, Federal Reserve Bank of New York,
2021; Hempel, Samuel, and R. Jay Kahn. ‘‘Negative
Rates in Bilateral Repo Markets.’’ Brief no. 21–03,
Washington, DC: Office of Financial Research, 2021;
Barth, Daniel, and R. Jay Kahn. ‘‘Hedge Funds and
the Treasury Cash-Futures Disconnect.’’ Working
Paper no. 21–01, Washington, DC: Office of
Financial Research, 2021.
34 Schreft, Stacey. 2016. ‘‘Lessons from the
Bilateral Repo Data Collection Pilot.’’ The OFR
Blog. Office of Financial Research. January 13,
2016.
35 Falaschetti, Dino. Remarks by Director
Falaschetti at the Open Session of the Meeting of
the Financial Stability Oversight Council. February
4, 2022; Martin, James. August 1, 2022. ‘‘OFR
Continues Efforts to Fill Key Gap in Financial
Data.’’; Hempel, Samuel, R. Jay Kahn, Vy Nguyen,
and Sharon Y. Ross. 2022. ‘‘Non-centrally Cleared
Bilateral Repo.’’
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permanent the collection of data on the
U.S. repo market. The Council first
recommended a collection of noncentrally cleared bilateral repo data in
its 2016 annual report.36 The Office
noted in its 2018 rulemaking on cleared
repo that it was considering subsequent
rulemaking on the non-centrally cleared
bilateral segment of the repo market.37
In the wake of the March 2020
illiquidity in the Treasury market, both
the Office’s 2020 Annual Report and the
Council’s 2020 Annual Report
highlighted the non-centrally cleared
bilateral repo market as an important
blind spot in financial stability
monitoring. The Council again
recommended a collection of noncentrally cleared bilateral repo data in
its 2021 annual report to Congress.38
Similarly, in a 2022 statement on
nonbank financial intermediation, the
Council expressed support for the
recommendation by the Hedge Fund
Working Group that the Office consider
ways to collect non-centrally cleared
bilateral repo data.39
The collection of transaction-level
data on non-centrally cleared bilateral
repos is key to the Council’s effective
identification and monitoring of
emerging threats to the stability of the
U.S. financial system and would fill in
the remaining gap in coverage following
the Office’s previous rulemaking on the
cleared repo market. If the proposal to
collect from certain brokers, dealers,
and other financial companies with over
$10 billion in the sum of extended
guarantees and outstanding noncentrally cleared bilateral repo
borrowing is adopted, the Office expects
to observe over 90% of the total noncentrally cleared bilateral repo market
by volume, with approximately 40
reporters. The Office also proposes
additional provisions below to capture
any other financial companies with over
$10 billion in extended guarantees and
non-centrally cleared bilateral repo
36 Financial Stability Oversight Council. 2016
Annual Report, p. 111. Washington, DC: FSOC,
2016. https://home.treasury.gov/system/files/261/
FSOC-2016-Annual-Report.pdf.
37 Federal Register. 2018. Vol. 83, no. 132, pg.
31898, July 10, 2018.
38 Office of Financial Research. 2020 OFR Annual
Report, Washington, DC: OFR, 2020. https://
www.financialresearch.gov/annual-reports/files/
OFR-Annual-Report-2020.pdf; Financial Stability
Oversight Council. 2020 Annual Report. pg. 38–41,
Washington, DC. FSOC, 2020. https://
home.treasury.gov/system/files/261/
FSOC2020AnnualReport.pdf; Financial Stability
Oversight Council; 2021 Annual Report, pg. 160,
Washington, DC: FSOC, 2021. https://
home.treasury.gov/system/files/261/
FSOC2021AnnualReport.pdf.
39 Financial Stability Oversight Council.
‘‘Nonbank Financial Intermediation.’’ Press Release,
February 4, 2022: FSOC. https://home.treasury.gov/
news/press-releases/jy0587.
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borrowing from non-broker, non-dealer
lenders, to cover any major potential
data gaps that currently exist or could
develop in this market segment. With
this collection, in combination with the
Office’s collection of cleared repo data
and the collection of tri-party data by
the Federal Reserve, substantially all of
the activity in the repo market would be
observed on outstanding commitments.
From a financial stability perspective,
it is important to monitor transactions
in the non-centrally cleared bilateral
repo segment for several reasons.
Importantly, activity across the different
segments of the repo market is linked.
The non-centrally cleared bilateral
market, for instance, serves as a close
substitute for centrally cleared bilateral
repo, particularly in the sponsored
segment of the market, where customers
that are not direct clearing members of
FICC, such as hedge funds and money
market funds, can participate in
transactions with clearing members and
have such transactions submitted to
FICC for clearing.
Migration to and from sponsored repo
is also an area of interest. In times of
stress, activity may move between
sponsored repo and non-centrally
cleared bilateral repo. Dealers’ decisions
to engage in sponsored repo may be
affected by factors that affect their
outstanding commitments. Examples
include changes in the supply of cash to
money market funds and the size of
netting benefits provided by sponsored
repo. In order to understand these shifts
to and from sponsored repo, data on
outstanding commitments in the noncentrally cleared bilateral repo market
are required.
Another factor that may affect flows
into and out of sponsored repo is the
development of guaranteed repo.
Customers may move from noncentrally cleared bilateral repo to the
same with guarantors as an alternative
to transacting though tri-party repo or
sponsored repo. Tri-party and
sponsored repo platforms offer, through
design, risk-reducing characteristics for
cash lenders and cash borrowers.
Additionally, as guaranteed repo
replicates the profile of offsetting legs of
the same repo transaction with different
counterparties, yet has different balance
sheet implications, guaranteed repo may
be an alternative to traditional repo
market financial intermediation. This
provides incentives for some financial
institutions to participate in repo
markets when financial intermediaries
are economically constrained. For all
these reasons, guaranteed repo
addresses various needs in the noncentrally cleared bilateral repo market.
A data collection regarding this final
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segment of the repo market is therefore
essential to providing regulators with a
complete picture of repo market activity
and to realizing the full potential of
existing data collections on other
segments of the repo market.
As noted above, because the noncentrally cleared bilateral repo market
has no central counterparty or
custodian, because of the nature of
collateral underlying trades in noncentrally cleared bilateral repo, and
because of the types of counterparties
that have large exposures to noncentrally cleared bilateral repo, these
data would provide insights into a
market that may be a particularly salient
financial system vulnerability. Many of
the counterparties involved in the
market, such as non-bank and nonprimary dealers, are difficult to monitor
with existing regulatory collections.
Transaction-level data would provide
regulators with the granularity
necessary to monitor exposures of
individual counterparties on a highfrequency basis, which is essential in a
market where crises are often too shortlived for other monthly or quarterly
reporting to capture. Moreover, data on
collateral would allow regulators to
monitor exposures on particular classes
of securities, margining practices that
protect participants from movements in
the value of collateral, and the potential
transmission of repo market stress into
securities markets. Timestamps and
details of trading venues would allow
regulators to monitor activity in a
market which is often segmented, and
where intra-day liquidity concerns play
a key role in the creation of stress.
The non-centrally cleared bilateral
repo market currently lacks
transparency, even to market
participants, on a variety of dimensions.
Providing aggregated statistics on rates,
haircuts, and volumes could provide
greater clarity to market participants on
characteristics of the market relevant to
their risk-management and other
decision making. This could take a form
similar to the Office’s current disclosure
of aggregated cleared repo data through
the Office’s U.S. Repo Markets Data
Release. Introducing data standards
through the rule’s reporting process into
this decentralized market may also
improve the ability to reconcile records
between firms in the event of a crisis.
Questions
1. How could aggregated data on noncentrally cleared bilateral repo be used
to foster greater transparency and
improve price discovery in the repo
market?
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2. How should the Office regard and
collect information on the risks of bank
guaranteed repo?
b. Uses of the Data Collection
This proposed collection would be
used by the Office to fulfill its purpose,
responsibilities, and duties under Title
I of the Dodd-Frank Act, including
improving the Council’s and Council
member agencies’ monitoring of the
financial system and in identifying and
assessing potential financial stability
risks. The additional daily transaction
data this proposed collection would
provide would facilitate identification
of potential repo market vulnerabilities
and would 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. Analyzing the
collateral data from this collection
together with other data available to the
Office, the Council, and Council
member agencies would enable a clearer
understanding of collateral flows in
securities markets and potential
financial stability risks.
Wholesale funding rates critically
relate to financial stability, as they
describe the borrowing costs financial
institutions may be subject to or convey
through periods of distress. It is
important for wholesale funding rates to
reflect actual borrowing costs. Repo
markets provide this relationship under
collateralized terms. SOFR is a
benchmark wholesale funding rate
recommended by the Alternative
Reference Rates Committee and is
computed based on cleared repo
transactions on Treasury collateral. The
Office’s 2022 pilot study demonstrated
that non-centrally cleared bilateral repo
markets constitute a large portion of
wholesale funding in repo markets.
Consequently, another potential use of
the Office’s proposed collection is to
enrich the calculation of SOFR with the
information obtained.
The Office may also use the data to
sponsor and conduct additional
research.40 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
40 12
U.S.C. 5343(b)(2).
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Data Center. For example, access to data
on non-centrally cleared bilateral repos
would allow the Office to conduct
research related to the Council’s
analysis of potential risks arising from
securities financing activities and
nonbank financial companies.
Consistent with the Dodd-Frank Act,
the Office may share the data collection
and information with the Council,
Council member agencies, and the
Bureau of Economic Analysis 41 and
will also make the data available to the
Council and member agencies as
necessary to support their regulatory
responsibilities.42 When sharing the
data as referenced above, the data and
information: (i) must be maintained
with at least the same level of security
as used by the Office; and (ii) may not
be shared with any individual or entity
without the permission of the Council.43
In addition, such sharing will be subject
to the confidentiality and security
requirements of applicable laws,
including the Dodd-Frank Act.44
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.45
After consultation with the member
agencies as required under the DoddFrank Act, certain data, including
aggregate or summary data from this
proposed collection, may be provided to
financial industry participants and to
the general 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.46
c. Legal Authority
The ability of the Office to collect
non-centrally cleared bilateral 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.47 The
Office consulted with the Council on
41 12
U.S.C. 5343(b)(1).
U.S.C. 5343(b), 12 U.S.C. 5344(b)(5).
43 12 U.S.C. 5333(b)(5).
44 12 U.S.C. 5343(b), 5344(b)(3).
45 12 U.S.C. 5343(b), 5322(d)(5).
46 12 U.S.C. 5344(b)(6).
47 12 U.S.C. 5344(b)(1)(B)(iii).
42 12
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1161
the proposed permanent collection of
non-centrally cleared bilateral repo data
at the Council’s July 28, 2022 meeting.48
The Office also has authority to
promulgate regulations pursuant to the
Office’s general rulemaking authority
under section 153 of the Dodd-Frank
Act, which authorizes the Office to issue
rules, regulations, and orders to the
extent necessary to carry out certain
purposes and duties of the Office.49 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.50 The
Office must consult with the
Chairperson of the Council prior to the
promulgation of any rules under section
153.51 As noted above, the Office
consulted with the Council on July 28,
2022.
This proposed collection would
support the Council and member
agencies by addressing the Council’s
recommendation to expand and make
permanent the collection of data on the
non-centrally cleared bilateral repo
market; helping the Council and
member agencies identify, monitor, and
respond to risks to financial stability;
and identifying gaps in regulation that
could pose risks to U.S. financial
stability. The Office has verified that
transaction information on the noncentrally cleared bilateral repo market
required to fulfill the purposes of this
proposed collection is not currently
available to the Council or member
agencies.
The Office’s statutory authority allows
for the collection of transaction and
position data from financial companies.
‘‘Financial company,’’ for purposes of
the Office’s authority, has the same
meaning as in Title II of the Dodd-Frank
Act.52 For this proposed collection, the
Office expects that covered reporters
will be ‘‘financial companies’’ as
defined in Title II because they are
48 Financial Stability Oversight Council. Meeting
Minutes, pg. 7. July 28, 2022. https://
home.treasury.gov/system/files/256/FSOC_
20220728_Minutes.pdf.
49 12 U.S.C. 5343(a), (c)(1).
50 12 U.S.C. 5343(a). The Council’s purposes and
duties include identifying risks and responding to
threats to U.S. financial stability; monitoring the
financial services marketplace to identify potential
threats to U.S. financial stability; making
recommendations 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).
51 12 U.S.C. 5343(c)(1).
52 12 U.S.C. 5341(2).
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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 53 (or they are a
subsidiary thereof). For a company to be
‘‘predominantly engaged’’ in activities
that are financial in nature or incidental
thereto, either (1) at least 85% of the
total consolidated revenues of the
company (determined in accordance
with applicable accounting standards)
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% or more of the total consolidated
revenues of the company.
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,
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.54
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 the types
of entities proposed to be covered
reporters, including underwriting,
dealing in or making a market in
securities; and lending, exchanging,
transferring, investing for others, or
safeguarding money or securities. Given
the level of experience, expertise, and
market credibility necessary for the
exposure thresholds proposed under
this rule, such entities will likely be
53 12
U.S.C. 1843(k).
‘‘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).
54 A
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financial companies and thus covered
reporters. While the Office currently
expects few, if any, entities to meet the
covered reporter definition thresholds
under the provision that requires nonSecurities Broker, non- securities dealer,
non-government securities broker, or
non-government securities dealer
financial companies to report, this
provision is explicitly limited to
financial companies as defined in 12
U.S.C. 5341(2).
V. Collection Design
The proposed regulatory text lists the
requirements specifically relevant to
this proposed collection. It also includes
a table that describes the data elements
that covered reporters would 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 would
require the submission of transaction
information by any covered reporter
whose average daily total outstanding
commitments to borrow cash and
extend guarantees through non-centrally
cleared bilateral repo contracts over all
business days during the prior calendar
quarter is at least $10 billion. This
materiality threshold is inclusive of
both overnight and intraday
commitments. For example, for a given
day, a reporter may have two
outstanding commitments to borrow
beginning on the same day with an
overnight maturity:
• First, the reporter has outstanding
commitments to borrow $100 million
from customer A in exchange for $100
million of securities.
• Second, the reporter has
commitments to lend customer B $100
million in exchange for $100 million of
securities.
In this example, the reporter’s total
gross outstanding commitments for
these two trades is $200 million and
total outstanding commitments to
borrow cash is $100 million.
The Office proposes a focus on
borrowing for reasons related to both
principle and practice. In principle,
borrowers are the sources of leverage in
the financial system and are
consequently naturally linked to
financial stability. From a practical
standpoint, the same market coverage
can be achieved by sampling fewer
borrowers than lenders. Within a choice
of market coverage on lenders, the
diversity of lending institution types is
also greater and creates consequent
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operational challenges in supporting a
collection. Diversity in composition and
familiarity with reporting standards
could also challenge the success of a
daily collection. Based on the above, the
Office believes that the focus on
borrowers rather than lenders is an
appropriate approach.
This proposed rule would require
reporting under this materiality
threshold from two categories of
financial companies:
• Category 1: securities broker,
securities dealers, government securities
brokers, and government securities
dealers, all as defined by and registered
pursuant to the Securities Exchange Act
of 1934 (Exchange Act),55 and
• Category 2: any financial company
that is not a Securities Broker, securities
dealer, government securities broker, or
government securities dealer, whose
average of daily total outstanding
commitments to borrow cash from or
extend guarantees to lenders is at least
$10 billion—through non-centrally
cleared bilateral repo with any other
entity that is not in category 1—over all
business days during the prior calendar
quarter. Additionally, the financial
company in category 2 has assets or
assets under management exceeding $1
billion if it meets any one of the
following criteria:
A. If an investment adviser registered
pursuant to the Investment Advisers Act
of 1940 provides continuous and regular
supervisory or management services to
securities portfolios valued at $1 billion
or more in assets under that law; or
B. If the firm is not an ‘‘investment
adviser,’’ but it files a required
disclosure of its balance sheet with a
primary financial regulatory agency,56
and has more than $1 billion in assets
under that disclosure; or
C. If the firm does not file a required
disclosure of its balance sheet with a
primary financial regulatory agency but
it does file a required disclosure with
any other Federal financial regulator,
and has more than $1 billion in assets
under that disclosure; or
D. If the firm does not file a required
disclosure of its balance sheet with any
primary financial regulatory agency but
it does file a required disclosure with
any state regulator, and has more than
$1 billion in assets under that
disclosure; or
55 The terms broker and dealer are defined in 15
U.S.C. 78c(a)(4), and (5), respectively. Broker and
dealer registration requirements are contained in 15
U.S.C. 78o. The terms government securities broker
and government securities dealer are defined in 15
U.S.C. 78c(a)(43) and (44), respectively.
Government securities broker and government
securities dealer registration requirements are
contained in 15 U.S.C. 78o–5.
56 12 U.S.C. 5301(12).
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E. If the firm does not file a required
disclosure of its balance sheet with any
state regulator or primary financial
regulatory agency but its stated assets to
outside investors or creditors in audited
financial statements, and has more than
$1 billion in assets under that
disclosure; or
F. If the firm has not done any of the
above but has disclosed assets in filings
with the Internal Revenue Service and
has more than $1 billion in assets under
that disclosure.
The Office distinguishes between
assets and assets under management in
the above sequence, because of how an
agent acts on the part of other parties.
Investment advisers primarily provide
investment management services as
fiduciary agents, using a wide variety of
models and vehicles. They engage in
activities such as entering into
repurchase agreements, acting as cash
borrowers, and buying and selling
derivatives on behalf of clients. These
activities can take place at the portfolio
level or at the adviser level and then
subsequently allocated to their managed
funds or portfolios. Unlike other
financial companies, the value of these
services is not fully reflected on the
balance sheet of the adviser, except in
advisory fee receivables. As a result, the
use of assets under management better
represents the market value of
investment activities provided and
should be used in the threshold
computation.
The Office is proposing the asset size
threshold for financial companies that
are not Brokers, Dealers, government
securities brokers or government
securities dealers in order to limit the
set of financial companies required to
calculate their repo exposures to a
grouping of entities whose activities are
consequential to the non-centrally
cleared bilateral repo market. Only
financial companies included within
these categories and that meet the
transaction volume threshold discussed
below would be required to report as
covered reporters under this proposed
collection.
The Office believes the proposed $10
billion outstanding commitments
threshold indicates sufficient
transactional volume for a Securities
Broker, securities dealer, government
securities broker, or government
securities dealer to be considered
material in the repo market. In
particular, the Office believes this
threshold would cover over 90% of the
non-centrally cleared bilateral repo
market, with approximately 40
reporters. However, because of the lack
of transparency in this market noted
above, there is necessarily some
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uncertainty on the number of reporters
and breadth of the market this definition
would include. As such, the Office is
seeking comment on the nature and
level of the threshold.
By collecting from certain brokers,
dealers, and financial companies with
large exposures to the repo market, the
Office proposes to leverage the existing
structure of the repo market, where
nearly all trades are intermediated by
either dealers, or financial companies
who play a similar role to brokers and
dealers, based on the Office’s research.
However, it is possible that some trades
in the repo market do not go through
securities broker, securities dealers,
government securities brokers, or
Government securities dealers. Due to
the lack of transparency in the noncentrally cleared bilateral repo market,
the market share of these ‘‘peer-to-peer’’
trades, which bypass traditional
intermediaries, is not knowable without
an existing comprehensive collection.
Moreover, it is possible that peer-to-peer
repo could expand in the future as
market structure evolves.
As a result, the Office is also
proposing to include, in addition to the
categories of financial companies noted
above, any financial company that is not
a Securities Broker, securities dealer,
government securities broker, or
government securities dealer with over
$1 billion in assets or assets under
management whose average of daily
total outstanding commitments to
borrow cash (inclusive of both overnight
and all intraday transactions) through
non-centrally cleared bilateral repo from
other entities that are not a Securities
Broker, securities dealer, government
securities broker, or government
securities dealer is also at least $10
billion over all business days during the
prior calendar quarter. This formulation
is intended to be flexible enough to
cover future developments in the
market, including the emergence of new
entities replacing existing repo
intermediaries. The Office is requesting
comment as to how prevalent the case
of financial companies fitting this
definition would be.
Though the Office believes that few
financial companies are likely to fit this
definition, it would require all financial
companies with greater than $1 billion
in assets or assets under management to
determine whether they are covered
reporters on a quarterly basis. Since
many financial companies have limits
on their ability to borrow, we believe
that this requirement would apply to
roughly 2,000 financial companies.57
57 This
number is based an Office estimate of the
number of private funds, real estate investment
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1163
Assuming it takes three hours per
quarter to determine which
counterparties to the firm are nonSecurities Broker, non-securities dealer,
non-government securities broker, or
non-government securities dealer
institutions and to calculate the average
open borrowings from these institutions,
and using an estimated hourly wage of
$126, the Office estimates the cost for a
single firm to determine its reporting
obligations on an ongoing annual basis
of this provision would be $1,512. This
would lead to a total cost of $3.024
million across all financial companies
that would need to determine whether
they are covered reporters. The Office is
also requesting comment on whether
these calculations are reasonable and in
particular whether there might be
adjustments needed to its estimates of
either the ongoing annual cost per
financial company or the total number
of financial companies that would need
to make this determination on a
quarterly basis.
The brokers, dealers, or other
financial companies meeting the
thresholds above would be required to
start submitting data under this
rulemaking beginning on the first
business day of the third full calendar
quarter after the calendar quarter in
which the firm meets the relevant
materiality threshold. For example, if
such brokers, dealers, or other financial
companies were to surpass the
threshold beginning with the quarter
ending on March 31 of a given year,
those institutions 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 $10 billion threshold for
at least four consecutive calendar
quarters would have its reporting
obligations cease. For example, if a
broker, dealer, or other financial
company that is a covered reporter
ceases to meet the $10 billion threshold
beginning with the quarter ending June
30 of a given year, and remains below
the $10 billion threshold in each of the
following three quarters (in this
example, March 31 of the following
year), its reporting obligations would
cease as of April 1.
Questions
1. Is the $10 billion materiality
threshold for identifying securities
broker, securities dealers, government
trusts, pension funds, and insurance funds that
have over $1 billion in assets or assets under
management.
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securities brokers, and government
securities dealers as covered reporters
clear and appropriate for ensuring the
Office collects the vast majority of
transactions in the non-centrally cleared
bilateral repo market? Would a higher or
lower threshold better accomplish the
goals of the collection? Would a
threshold based on gross activity (repo
borrowing plus repo lending) be more
appropriate for capturing relevant
brokers and dealers?
2. Please estimate the volume that
would be missed by limiting the
collection to only capture transactions
in which at least one of the
counterparties is a Securities Broker,
securities dealer, government securities
broker, or government securities dealer.
3. How many non-Securities Broker,
non-securities dealer, non-government
securities broker, or non-government
securities dealer financial companies
would be included as covered reporters
under the provisions described above?
Is the $1 billion in assets or assets under
management threshold an appropriate
measure? What characteristics, other
than the ones defined, describe these
financial companies?
4. Does the two-quarter phase-in
period for certain brokers and dealers
that become covered reporters after the
effective date of the rule provide
sufficient time to comply with the data
reporting requirements?
5. Are the Office’s estimates of the
ongoing annual cost of determining
whether a financial company with
greater than $1 billion in assets or assets
under management is a covered reporter
on a quarterly basis and the number of
companies that would likely be required
to make this determination reasonable?
How could they be improved?
6. Are there other sources of assets or
assets under management which should
be included in the threshold criteria?
b. Scope of Transactions
The Office is defining a non-centrally
cleared bilateral repurchase agreement
transaction as one in which one party
agrees to sell securities to a second party
in exchange for the receipt of cash, and
the simultaneous agreement of the
former party to later reacquire the same
securities (or any subsequently
substituted securities) from that same
second party in exchange for the
payment of cash; or an agreement of a
party to acquire securities from a second
party 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 party
in exchange for the receipt of cash. In
all cases the agreement does not involve
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a tri-party custodian nor is cleared with
a central counterparty. This definition
includes, but is not limited to,
transactions that are executed under a
Master Repurchase Agreement (MRA) or
Global Master Repurchase Agreement
(GMRA), or which are agreed to by the
parties as subject to the provisions of 11
U.S.C. 559. The rights established in
this code relate to contractual
characteristics of interest to the Office.
Notwithstanding the above, transactions
conducted under a Securities Lending
Agreement (SLA) or a Master Securities
Lending Agreement (MSLA) are not
considered repurchase agreements, nor
are repurchase agreements arising from
either participation in a commercial
mortgage loan or the initial
securitization of a residential mortgage
loan. The reasons for exclusion of all
such transactions relate to their greater
use to support specific demands for
securities. By contrast, repurchase
agreements more specifically relate to
loan provisions. Additionally, the Office
has chosen to exclude MSLA and Global
Master Securities Lending Agreement
(GMSLA) transactions from the
proposed rule due to the SEC’s
proposed Reporting of Securities
Loans.58 As a result and depending
upon the form and timing of any final
SEC rule, reporting these transactions to
the Office could be duplicative. Sell/
buy-back agreements have also been
excluded because in lacking the
contractual documentation
characteristics of other repo
transactions, collateral sales and
repurchases are separated from
borrowing and lending commitments,
respectively. While sell/buy-back
agreements accomplish similar goals to
repo transactions, these agreements are
recorded differently from MRA, GMRA,
MSLA, and GMSLA agreements and
may have contractual characteristics
and names that are different from the
preceding types. The Office seeks
comment on such assertions.
The Office has noted that some
transactions that would be covered
under the proposed rule are likely to be
with counterparties outside of the
United States (U.S.). Based on a review
of relevant foreign supervisory reporting
requirements and outreach to industry,
the Office believes that because the
proposed rule would only require
reporting by U.S. financial companies,
there would be no intersection with the
financial companies covered by foreign
collections. As a result, the Office does
not believe the proposed collection
would require duplicative reporting
58 Release No. 34–93613, Reporting of Securities
Loans, 86 FR 69802, 69803, fn. 2. December 8, 2021.
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from financial companies that would be
covered under its rule.
Covered reporters would be required
to report on all transactions that meet
the above-described characteristics. This
would include transactions by the
covered reporter settled internationally
or denominated in currencies other than
in U.S. dollars. Excluding transactions
settled outside of the U.S. would allow
for covered reporters to avoid reporting
by choosing to conduct the same
transaction but settling that transaction
outside the U.S. Meanwhile, collecting
data on repurchase agreements
denominated in foreign currencies
would give the Office greater
information on cross-border exposures
associated with repo borrowing.
Questions
1. The proposed rule text currently
covers agreements under an MRA or
GMRA. The Office’s experience with the
2015 OFR Bilateral Repo Pilot yielded
findings that equivalent trades to
repurchase agreements are often instead
contractually executed under Securities
Lending Agreements or Master
Securities Lending Agreements for
reasons of convenience.59
a. How would potential reporters
view the burden associated with the
inclusion of trades contractually
executed on a principal basis (i.e., not
as a securities lending agent for another
party) under an SLA or MSLA? What
burden would be associated with
excluding trades contractually executed
under SLAs or MSLAs?
b. How do you view the economic
comparability of repurchase agreements
and securities lending agreements
executed against cash on a principal
basis?
c. Would it be useful to restrict the
definition of repurchase agreement to
transactions under an GMRA or MRA?
Would the volume of reported
transactions be substantially narrower
under that definition?
d. What is the effect of referencing
transactions agreed to by the parties as
being subject to 11 U.S.C. 559?
2. If the Office decided to collect
information on sell/buy-back
transactions, do potential reporters
foresee any burdens in reporting those
in the same format as repo transactions?
3. Are there other types of
transactions the Office should consider
collecting in this or future collections?
59 Baklanova, Viktoria, Cecilia Caglio, Marco
Cipriani, and Adam Copeland. ‘‘The U.S. Bilateral
Repo Market: Lessons from a New Survey.’’ Brief
no. 16–01, Washington, DC: Office of Financial
Research, January 13, 2016. https://
www.financialresearch.gov/briefs/files/OFRbr-201601_US-Bilateral-Repo-Market-Lessons-fromSurvey.pdf.
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4. How would reporting repo
transactions also reported to foreign
supervisory authorities affect the
reporting burden for covered reporters?
5. How would reporting repurchase
agreements denominated in currencies
other than dollars affect the reporting
burden for covered reporters?
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c. Information Required
This proposed collection would
require reporting on non-centrally
cleared bilateral repo trades, including
detailed reporting about the securities
used to collateralize these trades and
contractual specifics of repurchase
agreements. The required data elements
are listed in the table in § 1610.11(c) of
the proposed regulatory text. This table
is tailored to capture information
regarding covered transactions in a
manner that the Office believes largely
reflects the data generated by covered
reporters in the ordinary course of
business. This 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 proposed collection and
further detail on certain key data fields,
including financial data standards and
identifiers. The definitions of these data
elements are based on the Office’s
research and experience in both the
2015 and 2022 pilots and, as described
in detail in the subsections below, have
been adapted to the Office’s purposes
for financial stability monitoring in the
repo market. Proposed required
information is also intended to promote
the use of financial data standards, in
line with the Office’s mandate under the
Dodd-Frank Act to collect and
standardize data to support the Council
in identifying risks to U.S. financial
stability.
ISO 20022
As an alternative to data element
definitions developed by the Office
through direct consultation with market
participants, the Office is considering
adopting the field definitions used in
the repo reporting messages in ISO
20022.60 Promoting these data standards
has advantages in terms of providing for
greater consistency with other potential
collections in the future and with
potential developments in market
practices. However, the Office believes
that in their current form, use of the
relevant ISO 20022 definitions would
not result in reported data that is fit for
the Office’s financial stability
60 The business component and its elements are
described under Repurchase Agreement in the ISO
20022 universal financial industry message schema
at https://www.iso20022.org/standardsrepository/
type/RepurchaseAgreement.
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monitoring purposes. In some cases, this
is because the current ISO 20022 field
definitions are too broad. In other cases,
the ISO 20022 field definitions focus
only on information associated with the
transaction at the time of the trade,
whereas the Office needs information on
transaction characteristics since
inception (e.g., outstanding
commitments). Reporting of outstanding
commitments is essential to the Office’s
focus on financial stability, since it
allows the Office to establish a full
picture of the current leverage of
covered reporters and their
counterparties. To that end, the Office is
proposing field definitions in the table
in § 1610.11(c) of the proposed
regulatory text.61
The Office is seeking comment on the
extent to which the ISO 20022 standard
is already used in the repo market,
especially with respect to those entities
that would be required to report under
the proposed rule, and the potential
utility of aligning the required data
submissions to the standard.
Questions
1. To what extent are financial
companies already assigning and using
ISO 20022 standards in repo market
transactions?
2. Are there advantages to be gained
in the Office’s ability to monitor the
repo market for purposes of financial
stability analysis by aligning the
proposed data elements and definitions
with the ISO 20022 standards?
3. Are there other voluntary
consensus standards the Office should
consider to enhance its ability to
monitor the repo market for purposes of
financial stability analysis?
4. How might the Office use this rule
to improve data standards in the noncentrally cleared bilateral repo market?
Legal Entity Identifier Usage
Authorities from around the world,
including those in the U.S., have
established a global legal entity
identifier (LEI) system, with oversight
effected by a Regulatory Oversight
Committee, composed of those same
authorities. A Swiss nonprofit
foundation, the Global LEI Foundation,
was established to provide operational
governance and management of local
operating units that issue LEIs.
The LEI is a 20-character identifier
standard, established as ISO 17442, that
identifies distinct legal entities engaging
in financial transactions. An LEI allows
for unambiguous identification of firms
and affiliates.
61 https://www.iso20022.org/standardsrepository/
type/RepurchaseAgreement.
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In both the 2015 pilot and the 2022
pilot, the Office experienced difficulties
working with the non-centrally cleared
bilateral repo market data due to the
absence of standardized counterparty
information. 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 includes
fields for submitting the LEI of each
covered reporter and counterparty
involved in a covered transaction.
Collecting the LEIs of these entities
would facilitate evaluation of the
covered transactions and reduce the
need for manual intervention in
matching identical participants that
supply different naming conventions
depending on the reporting, and help
identifying parent and affiliate
relationships. Finally, collecting the LEI
would allow the Office to form
consistent mappings from the data
collected under this rulemaking to other
existing data sets such as data collected
under the Office’s centrally cleared data
collection.
The Office’s proposed rule would
require covered reporters to submit their
LEI for each transaction. The proposed
rule would also require covered
reporters to submit the counterparty’s
LEI for each transaction, if available.
The Office believes that all covered
reporters are likely to already possess
valid LEIs.
LEIs must be properly maintained,
meaning they must be kept current and
up to date according to the standards
implemented by the Global LEI
Foundation. The proposed inclusion of
the LEI as a mandatory data field for
such purposes, according to the defined
standard, was widely supported for the
centrally cleared repo collection and
continues to be the globally accepted
standard for legal entity identification.
Requiring the reporting of LEIs is
consistent with the Office’s statutory
purposes and duties of collecting data
on behalf of the Council, providing such
data to the Council and member
agencies, and standardizing the types
and formats of data reported and
collected.
Mandatory reporting of the LEI would
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 2 million firms have obtained
an LEI and are therefore becoming
capable of obtaining these benefits. The
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aggregate cost savings for the financial
service industry upon broader adoption
of the LEI have been estimated in the
hundreds of millions of dollars.62
Questions
1. Do participants in non-centrally
cleared bilateral repo markets anticipate
challenges obtaining, maintaining, and
reporting LEIs?
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Unique Transaction Identifier Usage
The Unique Transaction Identifier
(UTI) is a globally unique identifier for
individual transactions in financial
markets. Beginning in 2014, regulators
and other stakeholders across major
financial jurisdictions, including the
Office, worked to harmonize transaction
reporting standards to be available for
use across all financial transactions,
including repo transactions. The output
of this work was the UTI, ISO 23897,
which was published in 2020 and
allocates a unique number to a financial
transaction as agreed among the parties
and/or within the regulatory system
under which it is formed. Since the
UTI’s publication as an ISO standard in
2020, adoption has steadily increased,
including in new U.S. rulemaking.63
Looking forward, UTI adoption across
financial market sectors could allow for
wider systemic risk monitoring.
Adoption of the UTI as a reported
element in this collection could
improve data quality by reducing the
need for manual intervention in
matching identical transactions across
counterparties, allowing the Office to
more effectively monitor and evaluate
financial risk. The Office has seen
adoption of UTIs in data submitted
under its 2022 non-centrally cleared
bilateral repo collection pilot. The
Office believes that requiring UTIs to be
reported, whenever available, will
promote UTI use over the long term,
conferring the anticipated benefits to
data quality, monitoring, and evaluation
described above, without imposing
reporting costs on those market
participants that do not currently assign
UTIs to their transactions. The Office’s
proposed rule therefore requires covered
reporters to submit UTIs for each
reported transaction, whenever a UTI
exists. UTIs should only be reported for
new transactions covered under this
proposed rule.
62 Office of Financial Research. Legal Entity
Identifier—Frequently Asked Questions. https://
www.financialresearch.gov/data/legal-entityidentifier-faqs/.
63 https://www.sec.gov/rules/other/2021/ddr/
exhibit-n-technical-specifications-narrative.pdf; and
https://www.cftc.gov/LawRegulation/
FederalRegister/finalrules/2020-21569.html.
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Questions
1. Do participants in the non-centrally
cleared bilateral repo market anticipate
challenges assigning, recording, and
sharing UTIs on a transaction-level
basis, including increased costs? If so,
please provide estimates of those costs.
2. Should the Office set construction
criteria for the generation of UTIs or is
there sufficient existing market practice
guidance for expansion to the noncentrally cleared bilateral repo market?
Collateral Information
The collateral underlying a
repurchase agreement is crucial to
assessing the exposures and risk
management in the repo market.
Information on which securities are
delivered into repo would allow the
Office to track common risk exposures
across counterparties. The fields
proposed would also allow the Office to
assess the extent to which specific
securities are tied to the repo market,
and therefore potential spillovers from
the repo market into underlying asset
markets, with potential effects on
liquidity and price efficiency.
Further details on valuation and
quantities delivered would provide the
Office with information on margining
practices. Knowing the quantity of
securities delivered would help
determine levels of overcollateralization in the market and the
flow of securities as firms engage in
security transformation and acquire
specific securities for delivery or sale.
The initial haircut and securities value
at inception of a trade gives further
information on the initial overcollateralization of trades. Knowing the
value of the securities as of the file
observation date allows for computation
of details on current margins
maintained by the firm. Finally,
knowing the currency these values are
reported in allows for comparison
across trades and allows the Office to
assess potential cross-border exposures
through non-centrally cleared bilateral
repo. The Office proposes that these
values be reported in the currency of
issuance of the underlying security,
since this value corresponds to the
underlying price market participants are
likely to reference in their regular
course of business. However, there
could be advantages in reporting
securities values in the same currency
as used to denominate the start and end
leg cash of the repurchase agreement,
since it may align with margining
practices.
Questions
1. Should the Office mandate
reporting securities value in the
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currency of issuance of the collateral or
in the currency of the repurchase
agreement?
2. How are variation margin payments
against non-centrally cleared bilateral
repurchase agreements determined?
How do they regard offsetting
conventions and put in place netting
practices? How may these conventions
and practices be reported in this
collection?
Date and Tenor Information
This proposed collection would
require information on the start and end
dates of transactions; the date and time
that each transaction was agreed to; and
whether a trade has optionality. It
would also require a number of
proposed fields regarding date and tenor
information. The trade timestamp is the
date and time on which a transaction
was agreed to. This field is critical for
differentiating same-day-start trades
from forward-settling trades.
Information from this field is also
essential to understanding how a
transaction is priced, and for
determining whether intra-day liquidity
is scarce in the market. Intra-day
liquidity management has been linked
to broader lack of liquidity in September
2019 and March 2020.64
Additionally, the proposed collection
would define the start date as the date
on which a settlement obligation related
to the exchange of cash and securities
for a transaction first exists. The end
date refers to the date on which the cash
lenders to the transaction are obliged to
return the cash and securities. For
trades with optionality, the Office seeks
to collect information on the minimum
maturity of the trade, or first date in
which either party has the option to
terminate a trade, such as the call date
for a callable trade or the next day for
a daily open trade. For trades with
optionality the end date would
represent the date at which the trade
would terminate if no option were
exercised and would be left blank for
open trades which have no prespecified
end date.
For repos with optionality, the
optionality field indicates how the
maturity of a transaction can be changed
after initial agreement. This information
is important for determining the pricing
of repurchase agreements, since repo
rates often depend on the options
offered in the agreement. Therefore,
without data on optionality,
comparisons may be made between two
64 Copeland, Adam, Darrell Duffie, and Yilin
Yang. ‘‘Reserves Were Not So Ample After All.’’
Working Paper no. 29090, Cambridge,
Massachusetts: National Bureau of Economic
Research, 2021.
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transactions with fundamentally
different pricing, leading to erroneous
inferences by regulators.
could lead to spillovers from the
markets used to calculate benchmarks
into the repo market.
Questions
1. Would there be any advantages to
reporting end date and minimum
maturity separately? Would the
inclusion of this additional field impose
significant costs on covered reporters?
2. Are there alternative definitions of
trading timestamps that would better
capture the economics of the trade or
correspond to industry practice?
Risk Management
Trade Direction, Trade Size, and Rate
The proposed rule would involve
reporting of the cash borrower and the
cash lender, and indicate whether the
covered reporter is either of those. The
reported fields would indicate whether
the trade is guaranteed by the covered
reporter. Additionally, the fields would
indicate the amounts of cash lent and
borrowed by the cash lender and cash
borrower, respectively. This information
is critical for determining the net
exposures of covered reporters to
individual securities as well as their
overall cash position.
The proposed table would also
include two fields on the exchange of
cash in these repo transactions.
Information would be required on the
amount of cash exchanged by the cash
borrowers and lenders at the initiation
and close of the trade. Where trades do
not have a defined close date, the
proposed rule would require that the
amount that would be due at the first
opportunity that either counterparty has
the option to end the trade be reported
as the close leg amount. In addition, the
current cash amount field tracks the
current amount of cash in the trade after
any adjustments to principal and the
accrual of interest, which allows
researchers to assess the balance
outstanding on open trades for which
the start leg may no longer be relevant.
The table would also require
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. Since
some term trades in non-centrally
cleared bilateral repo are based on
floating rates, additional information is
required for these trades. This
information includes the underlying
benchmark interest rate used for the
trade, the spread used above this
benchmark rate, and the reset frequency
of the benchmark. These fields give
necessary detail on how the trade has
been priced, and on the reliance of repo
trades on specific benchmarks, which
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The proposed rule would require
information on a covered reporter’s
netting practices. This field would
indicate whether the covered reporter
when acting as cash lender or cash
borrower offsets, or nets, repo exposures
with the same counterparty across asset
classes and instrument types not
restricted to the non-centrally cleared
bilateral repo market. Alternately, when
netting occurs within the non-centrally
cleared bilateral repo market, the field
would indicate the repo terms on which
netting occurs. These terms can include
a variety of terms including, but not
limited to, repo maturity, collateral
security, counterparty, and optionality.
Regarding these netting practices, the
field would indicate whether netting
occurs across asset classes and
instruments outside of the non-centrally
cleared bilateral repo market, or at a
transactional level within this market
and when so, on what repo terms.
Trade Venue
Finally, for trades which are placed
through electronic trading platforms, the
proposed collection would require the
name of the platform used. This field
allows the Office to capture information
on material service providers in the repo
market. It also allows the Office to
assess the extent to which electronic
platforms have been adopted, since
these platforms potentially allow for
greater price transparency and may lead
to more flexibility in counterparty
relationships in the event of a crisis.
Questions
1. Are the proposed reporting fields
generally appropriate? Do any particular
proposed reporting fields raise specific
questions or concerns?
2. 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?
3. Are the definitions in the proposed
regulatory text clear, or should any
definitions be modified or added?
d. Submission Process and
Implementation
The Office is currently reviewing
options for the submission process and
implementation of the collection and, if
the proposed rule is adopted, may
require submission either through the
Office or through a collection agent.
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1167
The Office proposes to require
submissions no later than 11:00 a.m. on
the business day following the
transaction. The proposed submission
process would allow for the secure,
automated transmission of files. The
Office expects that, if the proposal is
adopted, the final rule would 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 90 days after its effective
date. The Office believes this
implementation period would provide
adequate time for covered reporters to
comply with the proposed
requirements.
Questions
1. Does the proposed 90-day
compliance period for a financial
company that is a covered reporter on
the effective date of the rule provide
sufficient time to comply with the data
reporting requirements?
2. Are there any additional costs
associated with data reporting as
contemplated by this proposed
collection? If so, please provide
estimates of those costs.
3. 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?
4. What, if any, difficulties could a
non-centrally cleared bilateral repo
collection pose for placing non-centrally
cleared bilateral repo transactions?
What, if any, consequences would this
collection have for repo market volumes
or rates?
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).65
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
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Research at 717 14th Street NW,
Washington, DC 20220.
The proposal would establish the
permanent collection of certain
information on repo transactions and is
a ‘‘collection of information’’ pursuant
to the PRA. The Office is an
independent regulatory agency under
the PRA 66 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 would require
submission by 40 covered reporters,
who would be required to submit data
daily in accordance with the table in the
proposed regulatory text. The Office
anticipates an annual burden of 756
hours per covered reporter. This figure
is arrived at by estimating the daily
reporting time to be approximately 3
hours for submission 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 2021 Bureau of
Labor Statistics Occupational
Employment Statistics for credit
intermediation and related activities
(North American Industry Classification
System (NAICS) 522000). For hourly
compensation, a figure of $84 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
50.4% to cover subsequent wage gains
and non-wage benefits, which yields an
estimate of $126 per hour. Each covered
reporter must also obtain and maintain
an LEI, which typically costs $65, and
then $50 annually. Using these
assumptions, the Office estimates the
recurring operational costs for the
submissions under this proposed
collection to be $95,306 annually for
each covered reporter and the total
estimated annual costs for all expected
covered reporters is $3,812,240.
The Office also estimates that
approximately 2,000 financial firms
would need to determine whether they
are covered reporters on a quarterly
basis. The Office estimates this would
take 3 hours per quarter. The total
estimated annual cost for these 2,000
financial firms is $3,024,000. Combining
66 44
U.S.C. 3502(5).
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the costs of the 40 covered reporters and
the 2,000 financial firms, the total
recurring annual cost of the data
collection is estimated at $6,836,240.
Office Estimates Summary
Title: Ongoing Data Collection of NonCentrally Cleared Bilateral Transactions
in the U.S. Repurchase Agreement
Market.
Office: Office of Financial Research.
Frequency of Response: Daily (12 CFR
1610.11(d)).
Affected Public: Businesses or other
for-profit.
Scope of Covered Reporters: Any
party to a non-centrally cleared bilateral
repurchase agreement transaction that
meets the definition of financial
company set forth in 12 U.S.C. 5341(2)
and is: (i) A Securities Broker, securities
dealer, government securities broker, or
government securities dealer, each as
defined under and registered pursuant
to the Securities Exchange Act of 1934
whose average daily total outstanding
commitments to borrow in non-centrally
cleared bilateral repurchase agreement
transaction (prior to netting) with all
counterparties over all business days
during the prior calendar quarter is at
least $10 billion; or (ii) any other entity
whose assets or assets under
management are over $1 billion and
whose average daily outstanding
commitments to borrow in non-centrally
cleared bilateral repurchase agreement
transactions with counterparties that are
not included in (i) over all business
days during the prior calendar quarter is
at least $10 billion. (12 CFR 1610.11(a),
(b)(2)).
Number of Covered Reporters: 40
covered reporters.
Estimated Time per Covered Reporter
per Submission: 3 hours.
Number of Submissions: Daily
submission (12 CFR 1610.11(c)(3)).
Anticipated Annual Submissions:
252.
Total Estimated Annual Burden: 756
hours.
In addition to recurring reporting
costs, the Office anticipates covered
reporters would 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
approximately 500 hours per covered
reporter. Because the Office anticipates
40 covered reporters the estimated
initial start-up cost of all required
reporting is $2,520,000.
The Office invites comments on the
following: (a) Whether the proposed
collection of information is necessary
for the proper performance of the Office,
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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.67 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.68 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 would only apply to certain
brokers and dealers whose average daily
borrowing in non-centrally cleared
bilateral repo contracts over the prior
calendar quarter is at least $10 billion
and to other financial companies with
over $1 billion in assets or assets under
management and greater than $10
billion whose average daily borrowing
in non-centrally cleared bilateral repo
contracts over the prior calendar quarter
from counterparties who are also nonsecurities broker, non-securities dealers,
non-government securities brokers, or
non-Government securities dealers is at
least $10 billion.
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 $750 million or less in
assets.69 For purposes of the RFA,
entities that are banks are considered
small entities if their assets are less than
or equal to $750 million. The size of the
exposure-based threshold in this
67 5
U.S.C. 601 et seq.
U.S.C. 603(a).
69 13 CFR 121.201.
68 5
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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
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:
Questions
1. Are the requirements in the
proposal clearly stated? If not, how
could the proposed rule be more clearly
stated?
2. Does the proposed rule contain
language or jargon that is not clear? If
so, which language requires
clarification?
3. 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
Clearing, Confidential business
information, Data collection, Economic
statistics, No central counterparty,
Reference rates, Repurchase agreements,
No central counterparty.
For the reasons stated in the
preamble, the Office of Financial
Research proposes to amend 12 CFR
part 1610 as set forth below:
PART 1610—REGULATORY DATA
COLLECTIONS
1. The authority citation for part 1610
continues to read as follows:
■
Authority: 12 U.S.C. 5343 and 5344.
■
2. Add § 1610.11 to read as follows:
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§ 1610.11 Non-centrally cleared Bilateral
Repurchase Agreement Data.
(a) Definitions. The following
definitions are applicable in this
section:
Covered reporter means any financial
company that meets the criteria set forth
in paragraph (b)(2) of this section;
provided, however, that any covered
reporter shall cease to be a covered
reporter only if it does not meet the
dollar thresholds specified in paragraph
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(b)(2) of this section for at least four
consecutive calendar quarters.
Financial company has the same
meaning as in 12 U.S.C. 5341(2).
Government securities broker means
any institution registered as a
government securities broker with the
Securities and Exchange Commission
under the Securities Exchange Act of
1934.
Government securities dealer means
any institution registered as a
government securities dealer with the
Securities and Exchange Commission
under the Securities Exchange Act of
1934.
Investment adviser means any
institution registered as an investment
adviser with the Securities and
Exchange Commission under the
Investment Advisers Act of 1940.
Non-centrally cleared bilateral
repurchase agreement transaction
means an agreement of one party to sell
securities to a second party in exchange
for the receipt of cash, and the
simultaneous agreement of the former
party to later reacquire the same
securities (or any subsequently
substituted securities) from that same
second party in exchange for the
payment of cash; or an agreement of a
party to acquire securities from a second
party 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 party
in exchange for the receipt of cash. The
agreement does not involve a tri-party
custodian and is not cleared with a
central counterparty. This definition
includes, but is not limited to,
transactions that are executed under a
Master Repurchase Agreement (MRA) or
Global Master Repurchase Agreement
(GMRA), or which are agreed to by the
parties as subject to the provisions of 11
U.S.C. 559. Notwithstanding the above,
transactions conducted under a
Securities Lending Agreement (SLA) or
a Master Securities Lending Agreement
(MSLA) are not considered repurchase
agreements, nor are repurchase
agreements arising from either
participation in a commercial mortgage
loan or the initial securitization of a
residential mortgage loan.
Outstanding commitment: The
amount of financial obligations entered
into pursuant to any repurchase
agreement which opens on, or is
outstanding as of, the file observation
date, including transactions which both
opened and closed on the file
observation date. These financial
obligations include all of those that exist
prior to netting.
PO 00000
Frm 00021
Fmt 4702
Sfmt 4702
1169
Securities broker means any
institution registered as a broker with
the Securities and Exchange
Commission under the Securities
Exchange Act of 1934.
Securities dealer means any
institution registered as a dealer with
the Securities and Exchange
Commission under the Securities
Exchange Act of 1934.
(b) Purpose and Scope—(1) Purpose.
The purpose of this data collection is to
require the reporting of certain
information to the Office about noncentrally cleared bilateral repurchase
agreement transactions. The information
will be used by the Office to fulfill its
responsibilities under title I of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act, including
support of the Council and Council
member agencies by facilitating
financial stability monitoring and
research consistent with support of the
Council and its member agencies.
(2) Scope of Application. Reporting
under this section is required by any
financial company that is party to a noncentrally cleared bilateral repurchase
agreement transaction that is:
(i) A Securities Broker, securities
dealer, government securities broker, or
government securities dealer whose
average daily outstanding commitments
to borrow and extend guarantees in noncentrally cleared bilateral repurchase
agreement transactions with
counterparties over all business days
during the prior calendar quarter is at
least $10 billion; and
(ii) Any other financial company with
over $1 billion in assets or assets under
management whose average daily
outstanding commitments to borrow
and extend guarantees in non-centrally
cleared bilateral repurchase agreement
transactions, including commitments of
all funds for which the company serves
as an investment adviser, with
counterparties that are not securities
broker, securities dealers, government
securities brokers, or government
securities dealers over all business days
during the prior calendar quarter is at
least $10 billion.
(c) Data Required. (1) Covered
reporters shall report trade and
collateral information on all noncentrally cleared bilateral repurchase
agreement transactions, subject to
paragraph (c)(2) of this section, in
accordance with the prescribed
reporting format in this section.
(2) Covered reporters shall only report
trade and collateral information with
respect to any non-centrally cleared
bilateral repurchase agreement
transaction which opens on, or is
outstanding as of, the file observation
E:\FR\FM\09JAP1.SGM
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Federal Register / Vol. 88, No. 5 / Monday, January 9, 2023 / Proposed Rules
date, including transactions which both
opened and closed on the file
observation date.
(3) Covered reporters shall submit the
following data elements for all
transactions:
TABLE 1 TO PARAGRAPH (c)(3)
Data element
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Explanation
File observation date .....................................
Covered reporter LEI ....................................
Cash lender LEI ............................................
Cash lender name .........................................
Cash borrower name ....................................
Cash borrower LEI ........................................
Guarantee .....................................................
Netting set .....................................................
(9) Transaction id ................................................
(10) Unique transaction ID .................................
(11) Trading platform ..........................................
(12) Trade timestamp .........................................
(13) Start date .....................................................
(14) End date ......................................................
(15) Minimum maturity date ................................
(16) Cash lender internal identifier .....................
(17) Cash borrower internal identifier .................
(18) Start leg amount ..........................................
(19) Close leg amount ........................................
(20) Current cash amount ..................................
(21) Start leg currency ........................................
(22) Rate .............................................................
(23)
(24)
(25)
(26)
(27)
Floating rate ................................................
Floating rate reset frequency ......................
Spread .........................................................
Securities identifier type ..............................
Security identifier .........................................
(28) Securities quantity .......................................
(29) Securities value ...........................................
(30) Securities value at inception .......................
(31) Securities value currency ............................
(32) Haircut .........................................................
lotter on DSK11XQN23PROD with PROPOSALS1
(33) Special instructions notes or comments .....
(d) Reporting Process. The Office may
either collect the data itself or designate
a collection agent for that purpose.
Covered reporters shall submit the
required data for each business day by
11 a.m. Eastern time on the following
business day.
(e) Compliance Date. (1) Any financial
company that is a covered reporter as of
the effective date of this section shall
comply with the reporting requirements
pursuant to this section 90 days after the
effective date of this section. Any such
VerDate Sep<11>2014
17:06 Jan 06, 2023
Jkt 259001
The observation date of the file.
The Legal Entity Identifier of the covered reporter.
The Legal Entity Identifier of the cash lender.
The legal name of the cash lender.
The legal name of the cash borrower.
The Legal Entity Identifier of the cash borrower.
Indicator for whether the covered reporter issued a guarantee with respect to the transaction.
A descriptor to indicate for the transaction whether the covered reporter nets counterparty exposures across asset classes and instruments outside of repurchase agreements. When the
covered reporter does not net counterparty exposures across asset classes and instruments
outside of repurchase agreements, the descriptor indicates the repurchase agreement terms
on which netting occurs.
The respondent-generated unique transaction identifier in an alphanumeric string format.
If available, the Unique Transaction ID (UTI).
For transactions arranged using an outside vendor’s platform, the provider of the platform.
The timestamp that the trade became an obligation of the covered reporter or the covered reporter’s subsidiary.
The start date of the repo.
The date the repo matures.
The earliest possible date on which the transaction could end in accordance with its contractual terms (taking into account optionality).
The internal identifier assigned to the cash lender by the covered reporter, if the covered reporter is not the cash lender.
The internal identifier assigned to the cash borrower by the covered reporter, if the covered reporter is not the cash borrower.
The amount of cash transferred to the cash borrower on the open leg of the transaction at inception of the repurchase.
The amount of cash to be transferred by the cash borrower on the end date of the transaction.
The amount of cash to be transferred by the cash borrower, inclusive of accrued interest and
principal as of the file observation date.
The currency which is used in the ‘‘start leg’’ field.
The rate of interest paid by the cash borrower on the transaction, expressed as an annual percentage rate on an actual/360-day basis.
The benchmark interest rate upon which the transaction is based.
The time period, in calendar days, describing the frequency of the floating rate resets.
The contractual spread over the benchmark rate referenced in the repurchase agreement.
The identifier type for the securities transferred between cash borrower and cash lender.
The identifier of securities transferred between the cash borrower and the cash lender in the
repo.
For fixed-income instruments, the par amount of the transferred securities as of the report
date.
The market value of the transferred securities as of the close of business on the file observation date, inclusive of accrued interest.
The market value of the transferred securities at the inception of the transaction, inclusive of
accrued interest.
The currency which is used in the ‘‘securities value’’ and ‘‘securities value at inception’’ fields.
The difference between the market value of the transferred securities and the purchase price
paid at the inception of the transaction.
The covered reporter may characterize any collateral with special instructions notes or comments.
covered reporter’s first submission shall
be submitted on the first business day
after such compliance date.
(2) Any financial company 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
business day of the third full calendar
quarter following the calendar quarter in
PO 00000
Frm 00022
Fmt 4702
Sfmt 9990
which such financial company becomes
a covered reporter.
James D. Martin,
Deputy Director for Operations Performing
the Duties of the OFR Director.
[FR Doc. 2022–28615 Filed 1–6–23; 8:45 am]
BILLING CODE 4810–AK–P
E:\FR\FM\09JAP1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 5 (Monday, January 9, 2023)]
[Proposed Rules]
[Pages 1154-1170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28615]
=======================================================================
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DEPARTMENT OF THE TREASURY
12 CFR Part 1610
Collection of Non-Centrally Cleared Bilateral Transactions in the
U.S. Repurchase Agreement Market
AGENCY: Office of Financial Research, Department of the 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 non-centrally cleared bilateral
transactions in the U.S. repurchase agreement (repo) market. This
proposed collection would require daily reporting to the Office by
certain brokers, dealers, and other financial companies with large
exposures to the non-centrally cleared bilateral repo market. The
collected data would be used to support the work of the Financial
Stability Oversight Council (the Council), its member agencies, and the
Office to identify and monitor risks to financial stability.
DATES: Comments must be received by 60 days after the date of
publication in the Federal Register.
ADDRESSES: You may submit comments by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
[[Page 1155]]
Mail: Michael Passante, Chief Counsel, Office of Financial
Research, 717 14th Street NW, Washington, DC 20220.
Instructions: 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 at https://www.regulations.gov, including any personal
information provided. For access to the docket to read background
documents or comments received, visit https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: John Zitko, Senior Counsel, OFR, (202)
594-9658, [email protected]; or Sriram Rajan, Associate
Director of Financial Markets, OFR, (202) 594-9658,
[email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
II. Repurchase Agreement Market Background
a. Structure of the Repurchase Agreement Market
b. Importance of Repurchase Agreement Markets and Associated
Vulnerabilities
c. Characteristics of the Non-Centrally Cleared Bilateral
Repurchase Agreement Market That Underlie Financial Stability Risks
III. Data Available on U.S. Repurchase Agreement Activity
a. Tri-Party Repurchase Agreements
b. Centrally Cleared Repurchase Agreements
c. Non-Centrally Cleared Bilateral Repurchase Agreements
IV. Justification for Proposed Collection
a. Collection of Non-Centrally Cleared Bilateral Repurchase
Agreement Data
b. Uses of the Data Collection
c. Legal Authority
V. Collection Design
a. Scope of Application
b. Scope of Transactions
c. Information Required
ISO 20022
Legal Entity Identifier Usage
Unique Transaction Identifier Usage
Collateral Information
Date and Tenor Information
Trade Direction, Trade Size, and Rate
Risk Management
Trade Venue
d. 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 non-centrally
cleared bilateral transactions in the U.S. repurchase agreement (repo)
market (proposed collection). This proposed collection would require
reporting by certain U.S. covered reporters for repo transactions that
are not centrally cleared and have no tri-party custodian. This
proposed collection would enhance the ability of the Financial
Stability Oversight Council (Council), Council member agencies, and the
Office to identify and monitor risks to financial stability. 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. In a 2022 statement on nonbank financial intermediation, the
Council supported a recommendation made by the Council's Hedge Fund
Working Group that the Office consider ways to collect non-centrally
cleared bilateral repo data.\1\ Additionally, in July 2022 the Office
consulted with the Council on efforts to collect non-centrally cleared
bilateral repo data, including work on this proposed rule.\2\ As a part
of this consultation, the Office described the structure and objectives
of a pilot study of the non-centrally cleared bilateral repo market
conducted in the summer of 2022. This pilot study critically informed
the Office's collection efforts.
---------------------------------------------------------------------------
\1\ Financial Stability Oversight Council. ``Statement on
Nonbank Financial Intermediation.'' Press Release, February 4, 2022:
FSOC. https://home.treasury.gov/news/press-releases/jy0587.
\2\ Financial Stability Oversight Council. Meeting minutes.
FSOC, July 28, 2022, pg. 7. https://home.treasury.gov/system/files/256/FSOC_20220728_Minutes.pdf.
---------------------------------------------------------------------------
This proposed collection would require reporting on non-centrally
cleared bilateral repo transactions, which comprise the majority of
repo activity by several key categories of institutions such as primary
dealers and hedge funds.\3\ In line with the Council's discussions on
July 28, 2022, this proposed collection would provide visibility and
transparency into a crucial segment of the U.S. repo market and, as
explained below, the one remaining segment for which transaction-level
data is not available to regulators.
---------------------------------------------------------------------------
\3\ Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and Sharon Y. Ross.
2022. ``Non-centrally Cleared Bilateral Repo.'' OFR Blog. Office of
Financial Research. August 24, 2022. https://www.financialresearch.gov/the-ofr-blog/2022/08/24/non-centrally-cleared-bilateral-repo/.
---------------------------------------------------------------------------
Collection of information on the non-centrally cleared bilateral
repo market is critical to the understanding of financial stability
risks. The data proposed to be collected under this proposal will
enable the Office to monitor risks in this market. Further, as the
Council's duties relate to monitoring and responding to potential
financial stability risks, the proposed collection supports the
Office's statutory mandate to support the work of the Council.
II. Repurchase Agreement Market Background
The multitrillion-dollar market for repo transactions allows
financial institutions to lend or borrow cash, usually overnight, using
securities as collateral. A repo transaction is the sale of assets,
combined with an agreement to repurchase the assets at a 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 lender 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 to finance
securities holdings or to borrow specific securities for use. Central
banks also use repos as an important monetary policy tool.\4\ The
interest rate on repo borrowing is calculated based on the difference
between the sale price and the repurchase price of the assets
underlying the repo.
---------------------------------------------------------------------------
\4\ Logan, Lorie K. ``Operational Perspectives on Monetary
Policy Implementation: Panel Remarks on `The Future of the Central
Bank Balance Sheet.' '' Speech, Policy Conference on Currencies,
Capital, and Central Bank Balances, Stanford University, Stanford,
California, May 4, 2018. https://www.newyorkfed.org/newsevents/speeches/2018/log180504.
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Cash lenders typically require over-collateralization from
borrowers to protect themselves against a decline in the value of the
securities subject to repurchase. In the non-centrally cleared
bilateral repo market, the value of the securities pledged as
collateral is discounted, which is referred to as a haircut. Margin
requirements provide additional buffers for the variation in the value
of collateral. Initial margin is a buffer meant to cover the costs of
early termination of repo contracts. Drawn upon contingently, initial
margin differs from a second type of periodically adjusted margin. If
the market value of the collateral falls during the life of the repo,
the cash lender 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 agreement terms,
including the types of securities that are acceptable to the cash
lender as collateral, and risk management
[[Page 1156]]
protocols. These protocols include haircuts and margin requirements,
which address the costs related to variation in collateral value
underlying repo transactions. Participants may have arrangements with
each other to offset repo borrowing and lending agreements according to
certain conventions. These arrangements, referred to as netting
practices, relate to risk management considerations and the economic
terms on which repo transactions are negotiated. Firms may employ
netting practices across asset classes and instrument types outside of
repo markets, on a portfolio basis. Stated differently, a repo market
participant may manage netting practices on a repo counterparty across
a range of financial exposures. Alternatively, a pair of counterparties
may also manage their netting practices only within the context of repo
transactions.
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 floating basis. There are also open-
tenor repos, which do not have a fixed maturity and are instead renewed
by mutual agreement. A lender and a borrower may also write a repo
contract to give the option to recall cash or collateral early or
extend trades, especially for longer-tenor agreements with less-liquid
collateral.
a. Structure of the Repurchase Agreement Market
The repo market can be divided into four segments based on whether
the transactions are cleared by a central counterparty and whether a
tri-party custodian is used to settle transactions.\5\ Central
counterparties novate trades onto their balance sheets, interposing a
common counterparty for all transactions that allows participants to
better manage counterparty risk. Central counterparties also provide
netting benefits for both balance sheet and settlement purposes. Tri-
party custodians are banks that provide collateral valuation,
margining, and management services to the counterparties in a
repurchase agreement. The tri-party custodian provides back-office
support to both parties in the trade by settling the repo on its books
and confirming that the terms of the repo, such as eligible collateral
and haircuts, are met.
---------------------------------------------------------------------------
\5\ Kahn, R. Jay, and Luke Olson. ``Who Participates in Cleared
Repo?'' Brief no. 21-01, Washington, DC: Office of Financial
Research, 2021. For more background, see Baklanova, Viktoria, Adam
Copeland, and Rebecca McCaughrin. ``Reference Guide to U.S. Repo and
Securities Lending Markets.'' Working Paper no. 15-17, Washington,
DC: Office of Financial Research, U.S. Department of the Treasury,
2015.
---------------------------------------------------------------------------
The four segments of the repo market span the different
combinations of centrally cleared and non-centrally cleared, tri-party
and bilateral. For three of these segments, data are currently
collected by regulators. For the U.S. non-centrally cleared tri-party
repo market, Bank of New York Mellon serves as the tri-party custodian
and transaction-level data is collected under the supervisory authority
of the Federal Reserve Board of Governors (Federal Reserve Board). For
the centrally cleared tri-party repo market and bilateral repo market,
the Fixed Income Clearing Corporation (FICC) serves as the central
counterparty. The centrally cleared bilateral repo market is provided
by FICC's DVP Service and includes a sponsored service, which offers
eligible clients the ability to lend cash or eligible collateral via
FICC-cleared delivery-versus-payment (DVP) repo transactions in U.S.
Treasury and agency securities on an overnight and term basis settled
on a DVP basis.\6\ The centrally cleared tri-party repo market is
operated through FICC's GCF Repo Service, which also includes the
Centrally Cleared Institutional Tri-Party Service, through which
institutional counterparties (other than investment companies
registered under the Investment Company Act of 1940) can participate as
cash lenders in general collateral finance repo on a specified-
counterparty basis. In 2021, FICC also began a cleared tri-party
service for sponsored members known as the Sponsored General Collateral
Service.\7\ For all centrally cleared segments, data is collected
through the Office's cleared repo collection, which has given financial
regulators greater visibility into this segment of repo activity.\8\
---------------------------------------------------------------------------
\6\ Depository Trust and Clearing Corporation. ``Deposit Trust
and Clearing Corporation Sponsored Service.'' Fact sheet, page 1:
2018. https://www.dtcc.com/-/media/Files/Downloads/Clearing-Services/FICC/GOV/Sponsored-Membership-Fact-Sheet.pdf, page 1.
\7\ Depository Trust and Clearing Corporation. ``DTCC's FICC
Launches New Sponsored General Collateral Service as BNY Mellon,
Federated Hermes and J.P. Morgan Securities Execute First Triparty
Repo Trades.'' Press release, September 7, 2021: DTCC. https://www.dtcc.com/news/2021/september/07/dtccs-ficc-launches-new-sponsored-general-collateral-service.
\8\ 12 CFR part 1610.
---------------------------------------------------------------------------
The final segment of the market is the non-centrally cleared
bilateral repo market. This segment has no central counterparty or tri-
party custodian, and all trades within this segment are agreed to
bilaterally and are settled on a DVP basis. Unlike other segments of
the market, less information is known to financial regulators about the
non-centrally cleared bilateral segment. While some aggregate data are
available from various regulatory filings, there is no transaction-
level collection covering the market. However, research by the Office
finds that this segment represents 60% of total repo lending by primary
dealers and 37% of total repo borrowing.\9\
---------------------------------------------------------------------------
\9\ Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and Sharon Y. Ross.
2022. ``Non-centrally Cleared Bilateral Repo.'' OFR Blog. Office of
Financial Research. August 24, 2022. https://www.financialresearch.gov/the-ofr-blog/2022/08/24/non-centrally-cleared-bilateral-repo/. See also Infante, Sebastian, Lubomir
Petrasek, Zack Saravay, and Mary Tian. 2022. ``Insights from revised
Form FR2004 into primary dealer securities financing and MBS
activity.'' FEDS Notes. Federal Reserve Board. August 5, 2022.
https://www.federalreserve.gov/econres/notes/feds-notes/insights-from-revised-form-fr2004-into-primary-dealer-securities-financing-and-mbs-activity-20220805.html.
---------------------------------------------------------------------------
This proposed collection is designed to fill a critical gap in
regulators' information on the repo market by collecting data on the
non-centrally cleared bilateral repo market, the last segment for which
regulators do not have a transaction-level data source. The need for a
collection of data on this segment of the market to assist
policymakers' understanding of how the aggregate repo market operates
has been recognized by the Council since 2016, when it first called for
the Office to establish a permanent repo data collection.\10\ This lack
of visibility was felt acutely following recent episodes in repo
markets, which are described in greater detail below. These episodes
included a spike in repo market rates in September 2019 and events
related to the use of repo with respect to Treasury collateral in March
2020. For both of these events, substantial portions of activity in
these crucial funding markets could not be observed. In the wake of
these episodes of stress, market participants and regulators have
pointed to this segment as a critical blind spot in a market that plays
a key role in financial stability.\11\
---------------------------------------------------------------------------
\10\ Financial Stability Oversight Council. 2016 Annual Report
page 14, Washington, DC: FSOC, 2016. https://home.treasury.gov/system/files/261/FSOC-2016-Annual-Report.pdf.
\11\ Logan, Lorie K. ``Treasury Market Liquidity and Early
Lessons from the Pandemic Shock.'' Remarks, Brookings-Chicago Booth
Task Force on Financial Stability Meeting, 2020; International
Monetary Fund. 2020. ``United States: Financial Sector Assessment
Program Technical Note: Risk Oversight and Systemic Liquidity;''
Liang, Nellie, and Pat Parkinson. ``Enhancing Liquidity of the U.S.
Treasury Market Under Stress.'' Working Paper no. 72, Washington,
DC: Brookings Hutchins Center on Fiscal and Monetary Policy, 2020;
BlackRock. 2020. ``Lessons from COVID-19: Market Structure Underlies
Interconnectedness of the Financial Market Ecosystem.'' BlackRock
ViewPoint; Bank Policy Institute. 2020. ``Necessary Dimensions of a
Holistic Review of the Meltdown of U.S. Bond Markets in March;''
Citadel Securities. 2021. ``Enhancing Competition, Transparency, and
Resiliency in U.S. Financial Markets;'' Feldberg, Greg. ``Fixing
financial data to assess systemic risk.'' Brookings Economic
Studies, 2020; ``Brookings Hutchins Center on Fiscal and Monetary
Policy. 2021. ``Report of the Task Force on Financial Stability.''
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[[Page 1157]]
b. Importance of Repurchase Agreement Markets and Associated
Vulnerabilities
All four segments of the multitrillion-dollar repo market allow
financial institutions to lend or borrow cash, usually overnight, with
securities as collateral. 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 U. S. Research has identified this
market as subject to risks akin to bank runs that have systemic
consequences.\12\ While more recent distress in repo markets is
discussed below, the most salient example of run risks in repo markets
occurred during the Global Financial Crisis. In 2008-09, runs on repos
contributed to the financial crisis. Distressed financial institutions
reliant on borrowing through repo markets found their counterparties
unwilling to extend credit. Similar to bank runs from earlier times,
counterparties reduced the amounts lent, increased rates at which they
lent, and reduced maturities of repo contracts available to distressed
financial institutions. These events led to the Federal Reserve Board's
collection of data on the non-centrally cleared tri-party repo market.
Gaps in data and understanding yet remained. In support of its proposed
cleared repo rule, the Office laid out a framework for understanding
activity in the repo market and associated vulnerabilities across five
functions that repo provides: a low-risk cash investment, monetization
of assets, transformation of collateral, facilitation of hedging, and
more generally as a support for secondary market liquidity and pricing
efficiency.\13\ These functions remain today, as do the associated
vulnerabilities.
---------------------------------------------------------------------------
\12\ Gorton, Gary B., and Andrew Metrick. 2012. ``Securitized
Banking and the Run on Repo.'' Journal of Financial Economics
(June): pg. 425-451.
\13\ 83 FR 31896, 31897-31898 (July 10, 2018).
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These underlying vulnerabilities may generally be considered in the
following manner. As a deposit substitute, repo is subject to runs by
cash lenders, which may withdraw funds suddenly. This occurred in 2008
as fears of Bear Stearns' collapse led to a run against its repo
borrowing secured by high-quality collateral.\14\ As a means of
monetizing assets, the repo market is vulnerable to changes in the
valuation of securities and can transmit stress into the market for
securities used as collateral through fire sales of the assets as
haircuts increase. This occurred in 2007, as haircuts rose on private-
label mortgage-backed securities, forcing a cycle of fire sales and
deleveraging that further undermined this market.\15\ As a means for
the transformation of collateral, the repo market is vulnerable to
difficulties in sourcing securities and can transmit stress to
leveraged traders who enforce basic arbitrage relationships across
assets, allowing for the propagation of shocks throughout the
securities financing, derivatives, and securities markets. Because
repurchase agreements are used to hedge financial market risks, a loss
of function in the repo market can make it more difficult for investors
and financial institutions to protect themselves from risks. Finally,
because the repo market is a critical piece of secondary capital
markets, stress in the repo market can easily translate into broader
dysfunction and liquidity spirals in secondary markets, as large
portfolios of longer-term securities in the hands of levered entities
are funded daily in the repo market, and an inability to roll these
securities over could be disastrous for secondary markets.
---------------------------------------------------------------------------
\14\ 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 also Bank for International
Settlements. 2013. ``Liquidity Stress Testing: A Survey of Theory,
Empirics and Current Industry and Supervisory Practices.'' October
2013. https://www.bis.org/publ/bcbs_wp24.htm.
\15\ Gorton, Gary B. ``Information, Liquidity, and the (Ongoing)
Panic of 2007.'' Working Paper no. 14649, Cambridge, Massachusetts:
National Bureau of Economic Research, January 2009. https://www.nber.org/papers/w14649; and Iyer, Rajkamal, and Marco
Macchiavelli. 2017. ``Primary Dealers' Behavior During the 2007-08
Crisis: Part II, Intermediation and Deleveraging.'' FEDS Notes.
Federal Reserve Board. 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.
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Events in late 2019 and early 2020 only served to reinforce the
systemic importance of the repo market and the vulnerabilities it
faces. On September 17, 2019, overnight repo rates spiked to 5.3% from
2.4% the previous day.\16\ Though the size of this rate increase was
extraordinary, it was only one of a number of similar episodes of
sudden spikes in the preceding years.\17\ Several studies have found
these spikes were caused by occasions when the cash available to the
repo market was too small relative to the demand for funding,
illustrating that demand for repo funding can be very inelastic, with
rates suddenly rising in response to small changes in available
funding.\18\ These episodes highlight the vulnerabilities that come
from repo as a deposit substitute exposed to sudden withdrawals, as
well as the risks involved in rolling over large portfolios of
securities through repo. Moreover, the 2019 spike in the repo market
propagated into unsecured markets, including foreign exchange markets,
the Federal funds market, and the market for cash Treasuries,
highlighting the ability of shocks originating in the repo market to
propagate across the financial system.\19\
---------------------------------------------------------------------------
\16\ Afonso, Gara, Marco Cipriani, Adam Copeland, Anna Kovner,
Gabriele La Spada, and Antoine Martin. 2021. ``The Market Events of
Mid-September 2019.'' Economic Policy Review, Federal Reserve Bank
of New York, vol. 27, no. 2 (August): 1-26. https://www.newyorkfed.org/research/epr/2021/epr_2021_market-events_afonso.html; Anbil, Sriya, Alyssa Anderson, and Zeynep
Senyuz. 2021. ``Are Repo Markets Fragile? Evidence from September
2019.'' Finance and Economics Discussion Series 2021-028. FEDS
Notes. Federal Reserve Board. https://doi.org/10.17016/FEDS.2021.028.
\17\ Copeland, Adam, Darrell Duffie, and Yilin Yang. ``Reserves
Were Not So Ample After All.'' Working Paper no. 29090, Cambridge,
Massachusetts: National Bureau of Economic Research, 2021.
\18\ The September 17 spike in particular appears to have been
the result of a confluence of factors that restricted the supply of
cash and increased the demand for cash, including a Treasury
settlement, withdrawals from money market funds due to a tax
deadline, and a low level of reserves. See sources in footnote 14.
\19\ Tran, H. 2020. ``EM banks exposed to stress in FX swaps, a
spillover from U.S. repo markets.'' Financial Times (January 8,
2020). https://www.ft.com/content/5f8237cf-0e90-4f7d-9a0d-e4430f6fc7a1; Afonso, Gara, Marco Cipriani, Adam Copeland, Anna
Kovner, Gabriele La Spada, and Antoine Martin. 2021. ``The Market
Events of Mid-September 2019.'' Economic Policy Review, Federal
Reserve Bank of New York, vol. 27, no. 2 (August): 1-26. https://www.newyorkfed.org/research/epr/2021/epr_2021_market-events_afonso.html; Department of the Treasury, Federal Reserve
Board, Federal Reserve Bank of New York, Securities and Exchange
Commission, Commodity Futures Trading Commission. ``Recent
Disruptions and Potential Reforms in the U.S. Treasury Market: A
Staff Progress Report.'' Washington, DC: Department of the Treasury,
Federal Reserve Board, Federal Reserve Bank of New York, Securities
and Exchange Commission, Commodity Futures Trading Commission, 2021.
---------------------------------------------------------------------------
In March 2020, during the initial phases of the COVID-19 crisis,
the repo market again played an important role during a general
breakdown in Treasury market functioning. Early that month, dealers and
other intermediaries were overwhelmed by Treasury sales as part of a
generalized ``dash for cash'' from
[[Page 1158]]
mutual funds and foreign investors.\20\ Research suggests that these
sales reduced large financial institutions' capacity to intermediate in
the repo market given regulatory constraints on their balance
sheets.\21\ The pullback of these institutions from repo market
intermediation was associated with increasing volatility and spreads in
the repo market, again providing an example of the risks from repo as a
deposit substitute.\22\ Moreover, rising rates likely contributed to
sales of Treasuries by leveraged funds in arbitrage trades that rely on
repo financing, illustrating risks associated with monetization of
assets and the transformation of collateral.\23\ In order to address
distress within repo markets, the Federal Reserve expanded its
overnight and term repo facilities, rapidly bringing down rates in
overnight repo and gradually lowering rates in term repo.\24\
---------------------------------------------------------------------------
\20\ Group of Thirty Working Group on Treasury Market Liquidity
U.S. Treasury Markets: Steps Toward Increased Resilience.
Washington, DC: Group of Thirty, 2021. https://group30.org/publications/detail/4950; Liang, Nellie, and Pat Parkinson.
``Enhancing Liquidity of the U.S. Treasury Market Under Stress.''
Working Paper No. 72, Washington, DC: Brookings Hutchins Center for
Fiscal and Monetary Policy, 2020; Financial Stability Board.
``Holistic Review of the March Market Turmoil.'' Basel, Switzerland,
FSB, 2020; Financial Stability Oversight Council. 2020 Annual
Report, Washington, DC: FSOC, 2020; Office of Financial Research.
2020 Annual Report, Washington, DC: OFR, 2020; Duffie, Darrell.
2020. ``Still the world's safe haven? Redesigning the U.S. Treasury
market after the COVID-19 crisis.'' Brookings Hutchins Center for
Fiscal and Monetary Policy. June 22, 2020. https://www.brookings.edu/research/still-the-worlds-safe-haven/; Barth,
Daniel, and R. Jay Kahn. ``Hedge Funds and the Treasury Cash-Futures
Disconnect.'' Working Paper no. 21-01, Washington, DC: Office of
Financial Research, 2021.
\21\ Financial Stability Board. Holistic Review of the March
Market Turmoil. Basel, Switzerland, FSB, 2020; He, Zhiguo, Stefan
Nagel, and Zhaogang Song. 2022. ``Treasury inconvenience yields
during the COVID-19 crisis.'' Journal of Financial Economics, vol.
143, no. 1: pg. 57-79.
\22\ Financial Stability Board. Holistic Review of the March
Market Turmoil. Basel, Switzerland, FSB, 2020; He, Zhiguo, Stefan
Nagel, and Zhaogang Song. 2022. ``Treasury inconvenience yields
during the COVID-19 crisis.'' Journal of Financial Economics vol.
143, no. 1: pg. 57-79; Office of Financial Research. 2020 Annual
Report. Washington, DC: OFR, 2020; Clark, Kevin, Antoine Martin, and
Timothy Wessel. 2020. ``The Federal Reserve's Large-Scale Repo
Program.'' Liberty Street Economics. Federal Reserve Bank of New
York. August 3, 2020; Barth, Daniel, and R. Jay Kahn. ``Hedge Funds
and the Treasury Cash-Futures Disconnect.'' Working Paper no. 21-01,
Washington, DC: Office of Financial Research, 2021.
\23\ Aramonte, Sirio, Andreas Schrimpf, and Hyun Song Shin.
``Non-bank financial intermediaries and financial stability.''
Working Paper no. 972, Basel, Switzerland: Bank for International
Settlements, 2021; Barth, Daniel, and R. Jay Kahn. ``Hedge Funds and
the Treasury Cash-Futures Disconnect.'' Working Paper no. 21-01,
Washington, DC: Office of Financial Research, 2021; Kruttli,
Mathias, Phillip J. Monin, Lubomir Petrasek, and Sumudu W. Watugala.
``Hedge Fund Treasury Trading and Funding Fragility: Evidence from
the COVID-19 Crisis.'' Finance and Economics Discussion Series 2021-
038, Board of Governors of the Federal Reserve System, 2021.
\24\ Barth, Daniel, and R. Jay Kahn. ``Hedge Funds and the
Treasury Cash-Futures Disconnect.'' Working Paper no. 21-01,
Washington, DC: Office of Financial Research, 2021; Clark, Kevin,
Antoine Martin, and Timothy Wessel ``The Federal Reserve's Large-
Scale Repo Program.'' Liberty Street Economics. Federal Reserve Bank
of New York. August 3, 2020.
---------------------------------------------------------------------------
Both of these episodes illustrate that the repo market is still
subject to the vulnerabilities highlighted previously and perhaps has
become more central to the functioning of U.S. securities and short-
term funding markets. These vulnerabilities are present to a greater or
lesser extent across the four different segments of the repo market. In
addition, certain features of the non-centrally cleared bilateral repo
market may exacerbate the risks in other segments of the market.
c. Characteristics of the Non-Centrally Cleared Bilateral Repurchase
Agreement Market That Underlie Financial Stability Risks
Several characteristics of the non-centrally cleared bilateral repo
market increase the potential for risks to financial stability and,
thus, the Office's interest in collecting data on this segment of the
overall repo market. This market is largely unobserved by financial
regulators, resulting in data gaps that limit how well financial
regulators can monitor risks and vulnerabilities that could affect
financial stability. During a crisis, these gaps can delay analysis,
understanding, and responses. While market participants may have access
to some market information, the absence of inter-dealer brokers and the
execution of trades through unstructured protocols such as telephone or
chat systems creates challenges for financial regulators to understand
market structure, market participation, and distribution of risk in
real time. Since abrupt changes can have financial stability
consequences, addressing data gaps is of high importance.
It is also important that the Office more deeply understand
collateral risk, another market characteristic with implications for
financial stability. The non-centrally cleared bilateral repo market
generally contains riskier collateral than other market segments, since
cleared markets are limited to Fedwire-eligible collateral such as
Treasuries and agency bonds. Data from the Federal Reserve Bank of New
York's Primary Dealer Statistics show that 95% of primary dealer repo
lending against non-Fedwire-eligible collateral (including asset-backed
securities, corporate debt and other securities) is conducted through
the non-centrally cleared bilateral repo market. These collateral types
have more risk factors than those that drive Treasury and agency bonds.
Additionally, non-centrally cleared bilateral repo made up over 81% of
primary dealer lending against agency collateral, and 100% of primary
dealer lending against agency commercial mortgage-backed securities
(MBS) and non-MBS debt. Supported by riskier collateral, the non-
centrally cleared bilateral repo market is potentially more exposed to
the risks associated with monetizing assets.
The non-centrally cleared bilateral repo market also has
counterparty complexity that warrants focus. Many counterparties are
institutions that do not appear in the cleared or tri-party markets
that financial regulators know more about. It is likely that the non-
centrally cleared bilateral market features a large amount of borrowing
by highly leveraged actors such as hedge funds.\25\ Financial
regulators may not have information on the complexity and extent of
hedge fund repo borrowing. For instance, Long-Term Capital Management
(LTCM), a hedge fund that failed in 1998, built up large counterparty
exposures through non-centrally cleared bilateral repo.\26\ Its repo
and reverse-repo transactions were conducted with 75 different
counterparties, many of which were reportedly unaware of the fund's
total exposure.\27\ These large exposures built up through repo were a
key source of potential stress from LTCM's failure, as liquidations of
the underlying collateral in bankruptcy could have resulted in
significantly depressed prices and broader disruptions to markets.\28\
---------------------------------------------------------------------------
\25\ Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and Sharon Y. Ross.
2022. ``Non-centrally Cleared Bilateral Repo.'' August 24, 2022. The
OFR Blog. Office of Financial Research. https://www.financialresearch.gov/the-ofr-blog/2022/08/24/non-centrally-cleared-bilateral-repo/.
\26\ Parkinson, Patrick M. Report on Hedge Funds, Leverage, and
the Lessons of Long-Term Capital Management. Testimony, U.S. House,
May 6, 1999, Cong., Washington, DC: Federal Reserve Board, 1999.
https://www.federalreserve.gov/boarddocs/testimony/1999/19990506.htm; Dixon, Lloyd, Noreen Clancy, and Krishna B. Kumar.
2012. Hedge Funds and Systemic Risk. Santa Monica, California: RAND
Corporation. https://www.jstor.org/stable/10.7249/j.ctt1q60xr.11.
\27\ Parkinson, Patrick M. Report on Hedge Funds, Leverage, and
the Lessons of Long-Term Capital Management. Testimony, U.S. House,
May 6, 1999, Cong., Washington, DC: Federal Reserve Board, 1999.
\28\ Ibid.
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The non-centrally cleared bilateral repo market is exposed to
varying risk management conventions that require
[[Page 1159]]
greater insight. These conventions include but are not limited to
margining and settlement. For instance, the variation in margining
practices across competing intermediaries may create competitive
pressures that drive margins to lower levels than justified by prudent
risk management.\29\ Similarly, the Treasury Market Practices Group
found settlement practices vary widely and expressed concern that
``bespoke bilateral processes may reflect differences in the level of
understanding among market participants of the inherent risks of SFT
clearing and settlement.'' \30\
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\29\ The Group of Thirty report cited above notes competitive
pressures in the repo market ``driving haircuts down (sometimes to
zero).'' See also Group of Thirty Working Group on Treasury Market
Liquidity. U.S. Treasury Markets: Steps Toward Increased Resilience.
Washington, DC: Group of Thirty, G30, 2021. https://group30.org/publications/detail/4950.
\30\ Treasury Market Practices Group. ``TMPG Releases Updates
for Working Groups on Clearing and Settlement Practices for Treasury
SFTs, Treasury Market Data and Transparency.'' Press Release,
November 5, 2021.
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III. Data Available on U.S. Repurchase Agreement Activity
As demonstrated during the Global Financial Crisis and the COVID-19
pandemic, high-quality information is one of the best tools for
identifying the build-up of risk. While improvements have been made,
especially through the Office's collection of cleared repo data, a full
transaction-level picture of all segments of the U.S. repo market is
still unavailable. This proposed collection would cover certain non-
centrally cleared bilateral repo transactions, allowing the Office to
gather data on a mandatory basis on what it estimates to be a
substantial share of the total U.S. repo market. This proposed
collection, in combination with the Office's other repo collections,
would provide visibility and transparency into every major segment of
the U.S. repo market, in line with the Council's recommendations. This
section reviews data provided to regulators on other segments of the
repo market and describes the pilot collections of repo data preceding
this proposed rule.
a. Tri-Party Repurchase Agreements
The Federal Reserve Board has supervisory authority over the Bank
of New York Mellon, the major tri-party custodian bank and, on a
mandatory basis pursuant to its supervisory authority, collects daily
data on transactions in tri-party repo markets through the Federal
Reserve Bank of New York.\31\ 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 (e.g., the ability to extend or terminate early),
and, if the transaction includes an option, the minimum notice period
required to exercise it.\32\ Aggregated data from this collection is
made available through the Federal Reserve Bank of New York's reference
rates (including the Secured Overnight Financing Rate (SOFR); the Broad
General Collateral Rate (BGCR); and the Tri-Party General Collateral
Rate (TGCR); the Federal Reserve Bank of New York's Tri-Party
Statistics; and the Office's U.S. Repo Markets Data Release.
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\31\ The Bank of New York Mellon currently serves as the sole
tri-party custodian in the United States. See 82 FR 41259, 41260
(August 30, 2017).
\32\ 82 FR 41259, 41260 (August 30, 2017).
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b. Centrally Cleared Repurchase Agreements
The Office collects transaction-level data on cleared repo markets
pursuant to the Office's rule on cleared repo. For general collateral
repurchase agreements through FICC's GCF Repo Service and the Sponsored
General Collateral Service, the data collected under the rule include
the interest rate; details on the collateral pledged; the date and time
the transaction is initiated, becomes effective, and matures; the value
of funds borrowed; the identities of the counterparties; and the net
value and collateral identifier for collateral delivered. For specific
collateral repurchase agreements through FICC's DVP Service, the data
includes the same fields as well as the broker. For both these
segments, aggregates of the data are made public through the Federal
Reserve Bank of New York's reference rates noted above and the Office's
U.S. Repo Markets Data Release. In addition, transaction-level data has
been used by the Office and the Federal Reserve Bank of New York in
briefs and working papers, as well as to inform regulators on
developments in short-term funding markets and in the Office's annual
reports.\33\
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\33\ Briefs and working papers using data from the Office's
cleared repo collection include Barth, Daniel, and R. Jay Kahn.
``Basis Trades and Treasury Market Illiquidity.'' Brief no. 20-01,
Washington, DC: Office of Financial Research, 2020; Clark, Kevin,
Adam Copeland, R. Jay Kahn, Antoine Martin, Matthew McCormick, Will
Riordan, and Timothy Wessel. ``How Competitive are U.S. Treasury
Repo Markets?'' New York, New York: Liberty Street Economics,
Federal Reserve Bank of New York, February 18, 2021; Kahn, R. Jay,
and Luke Olson. ``Who Participates in Cleared Repo?'' Brief no. 21-
01, Washington, DC: Office of Financial Research, 2021; Clark,
Kevin, Adam Copeland, R. Jay Kahn, Antoine Martin, Mark E. Paddrik,
and Benjamin Taylor. ``Intraday Timing of General Collateral Repo
Markets,'' Liberty Street Economics, Federal Reserve Bank of New
York, 2021; Hempel, Samuel, and R. Jay Kahn. ``Negative Rates in
Bilateral Repo Markets.'' Brief no. 21-03, Washington, DC: Office of
Financial Research, 2021; Barth, Daniel, and R. Jay Kahn. ``Hedge
Funds and the Treasury Cash-Futures Disconnect.'' Working Paper no.
21-01, Washington, DC: Office of Financial Research, 2021.
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c. Non-Centrally Cleared Bilateral Repurchase Agreements
Unlike the other three repo market segments, the wholly bilateral
nature of non-centrally cleared repo means there is no central source
for comprehensive transaction-level data on activity in this segment.
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 conducted a pilot in 2015 in partnership with
the Federal Reserve and the Securities and Exchange Commission (SEC),
to collect information on both centrally cleared and non-centrally
cleared bilateral repo transactions. The 2015 pilot gathered data from
a subset of U.S.-based brokers and dealers. The results and lessons
learned were published in January 2016.\34\ In order to update and
expand upon the 2015 pilot and address the Council's more recent
recommendations, in 2022 the Office conducted another pilot on the non-
centrally cleared bilateral repo market.\35\ Significant lessons were
learned about the non-centrally cleared bilateral repo market from both
pilots. These have been incorporated into the design of this proposed
collection, which would provide data on this final segment of the
market of comparable granularity to what is collected on tri-party and
cleared repo.
---------------------------------------------------------------------------
\34\ Schreft, Stacey. 2016. ``Lessons from the Bilateral Repo
Data Collection Pilot.'' The OFR Blog. Office of Financial Research.
January 13, 2016.
\35\ Falaschetti, Dino. Remarks by Director Falaschetti at the
Open Session of the Meeting of the Financial Stability Oversight
Council. February 4, 2022; Martin, James. August 1, 2022. ``OFR
Continues Efforts to Fill Key Gap in Financial Data.''; Hempel,
Samuel, R. Jay Kahn, Vy Nguyen, and Sharon Y. Ross. 2022. ``Non-
centrally Cleared Bilateral Repo.''
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IV. Justification for Proposed Collection
a. Collection of Non-Centrally Cleared Bilateral Repurchase Agreement
Data
The collection of data on the non-centrally cleared bilateral
segment of the repo market marks a significant step in carrying out the
Council's recommendation to expand and make
[[Page 1160]]
permanent the collection of data on the U.S. repo market. The Council
first recommended a collection of non-centrally cleared bilateral repo
data in its 2016 annual report.\36\ The Office noted in its 2018
rulemaking on cleared repo that it was considering subsequent
rulemaking on the non-centrally cleared bilateral segment of the repo
market.\37\ In the wake of the March 2020 illiquidity in the Treasury
market, both the Office's 2020 Annual Report and the Council's 2020
Annual Report highlighted the non-centrally cleared bilateral repo
market as an important blind spot in financial stability monitoring.
The Council again recommended a collection of non-centrally cleared
bilateral repo data in its 2021 annual report to Congress.\38\
Similarly, in a 2022 statement on nonbank financial intermediation, the
Council expressed support for the recommendation by the Hedge Fund
Working Group that the Office consider ways to collect non-centrally
cleared bilateral repo data.\39\
---------------------------------------------------------------------------
\36\ Financial Stability Oversight Council. 2016 Annual Report,
p. 111. Washington, DC: FSOC, 2016. https://home.treasury.gov/system/files/261/FSOC-2016-Annual-Report.pdf.
\37\ Federal Register. 2018. Vol. 83, no. 132, pg. 31898, July
10, 2018.
\38\ Office of Financial Research. 2020 OFR Annual Report,
Washington, DC: OFR, 2020. https://www.financialresearch.gov/annual-reports/files/OFR-Annual-Report-2020.pdf; Financial Stability
Oversight Council. 2020 Annual Report. pg. 38-41, Washington, DC.
FSOC, 2020. https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf; Financial Stability Oversight Council;
2021 Annual Report, pg. 160, Washington, DC: FSOC, 2021. https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.
\39\ Financial Stability Oversight Council. ``Nonbank Financial
Intermediation.'' Press Release, February 4, 2022: FSOC. https://home.treasury.gov/news/press-releases/jy0587.
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The collection of transaction-level data on non-centrally cleared
bilateral repos is key to the Council's effective identification and
monitoring of emerging threats to the stability of the U.S. financial
system and would fill in the remaining gap in coverage following the
Office's previous rulemaking on the cleared repo market. If the
proposal to collect from certain brokers, dealers, and other financial
companies with over $10 billion in the sum of extended guarantees and
outstanding non-centrally cleared bilateral repo borrowing is adopted,
the Office expects to observe over 90% of the total non-centrally
cleared bilateral repo market by volume, with approximately 40
reporters. The Office also proposes additional provisions below to
capture any other financial companies with over $10 billion in extended
guarantees and non-centrally cleared bilateral repo borrowing from non-
broker, non-dealer lenders, to cover any major potential data gaps that
currently exist or could develop in this market segment. With this
collection, in combination with the Office's collection of cleared repo
data and the collection of tri-party data by the Federal Reserve,
substantially all of the activity in the repo market would be observed
on outstanding commitments.
From a financial stability perspective, it is important to monitor
transactions in the non-centrally cleared bilateral repo segment for
several reasons. Importantly, activity across the different segments of
the repo market is linked. The non-centrally cleared bilateral market,
for instance, serves as a close substitute for centrally cleared
bilateral repo, particularly in the sponsored segment of the market,
where customers that are not direct clearing members of FICC, such as
hedge funds and money market funds, can participate in transactions
with clearing members and have such transactions submitted to FICC for
clearing.
Migration to and from sponsored repo is also an area of interest.
In times of stress, activity may move between sponsored repo and non-
centrally cleared bilateral repo. Dealers' decisions to engage in
sponsored repo may be affected by factors that affect their outstanding
commitments. Examples include changes in the supply of cash to money
market funds and the size of netting benefits provided by sponsored
repo. In order to understand these shifts to and from sponsored repo,
data on outstanding commitments in the non-centrally cleared bilateral
repo market are required.
Another factor that may affect flows into and out of sponsored repo
is the development of guaranteed repo. Customers may move from non-
centrally cleared bilateral repo to the same with guarantors as an
alternative to transacting though tri-party repo or sponsored repo.
Tri-party and sponsored repo platforms offer, through design, risk-
reducing characteristics for cash lenders and cash borrowers.
Additionally, as guaranteed repo replicates the profile of
offsetting legs of the same repo transaction with different
counterparties, yet has different balance sheet implications,
guaranteed repo may be an alternative to traditional repo market
financial intermediation. This provides incentives for some financial
institutions to participate in repo markets when financial
intermediaries are economically constrained. For all these reasons,
guaranteed repo addresses various needs in the non-centrally cleared
bilateral repo market. A data collection regarding this final segment
of the repo market is therefore essential to providing regulators with
a complete picture of repo market activity and to realizing the full
potential of existing data collections on other segments of the repo
market.
As noted above, because the non-centrally cleared bilateral repo
market has no central counterparty or custodian, because of the nature
of collateral underlying trades in non-centrally cleared bilateral
repo, and because of the types of counterparties that have large
exposures to non-centrally cleared bilateral repo, these data would
provide insights into a market that may be a particularly salient
financial system vulnerability. Many of the counterparties involved in
the market, such as non-bank and non-primary dealers, are difficult to
monitor with existing regulatory collections. Transaction-level data
would provide regulators with the granularity necessary to monitor
exposures of individual counterparties on a high-frequency basis, which
is essential in a market where crises are often too short-lived for
other monthly or quarterly reporting to capture. Moreover, data on
collateral would allow regulators to monitor exposures on particular
classes of securities, margining practices that protect participants
from movements in the value of collateral, and the potential
transmission of repo market stress into securities markets. Timestamps
and details of trading venues would allow regulators to monitor
activity in a market which is often segmented, and where intra-day
liquidity concerns play a key role in the creation of stress.
The non-centrally cleared bilateral repo market currently lacks
transparency, even to market participants, on a variety of dimensions.
Providing aggregated statistics on rates, haircuts, and volumes could
provide greater clarity to market participants on characteristics of
the market relevant to their risk-management and other decision making.
This could take a form similar to the Office's current disclosure of
aggregated cleared repo data through the Office's U.S. Repo Markets
Data Release. Introducing data standards through the rule's reporting
process into this decentralized market may also improve the ability to
reconcile records between firms in the event of a crisis.
Questions
1. How could aggregated data on non-centrally cleared bilateral
repo be used to foster greater transparency and improve price discovery
in the repo market?
[[Page 1161]]
2. How should the Office regard and collect information on the
risks of bank guaranteed repo?
b. Uses of the Data Collection
This proposed collection would be used by the Office to fulfill its
purpose, responsibilities, and duties under Title I of the Dodd-Frank
Act, including improving the Council's and Council member agencies'
monitoring of the financial system and in identifying and assessing
potential financial stability risks. The additional daily transaction
data this proposed collection would provide would facilitate
identification of potential repo market vulnerabilities and would 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. Analyzing the collateral data from this collection together
with other data available to the Office, the Council, and Council
member agencies would enable a clearer understanding of collateral
flows in securities markets and potential financial stability risks.
Wholesale funding rates critically relate to financial stability,
as they describe the borrowing costs financial institutions may be
subject to or convey through periods of distress. It is important for
wholesale funding rates to reflect actual borrowing costs. Repo markets
provide this relationship under collateralized terms. SOFR is a
benchmark wholesale funding rate recommended by the Alternative
Reference Rates Committee and is computed based on cleared repo
transactions on Treasury collateral. The Office's 2022 pilot study
demonstrated that non-centrally cleared bilateral repo markets
constitute a large portion of wholesale funding in repo markets.
Consequently, another potential use of the Office's proposed collection
is to enrich the calculation of SOFR with the information obtained.
The Office may also use the data to sponsor and conduct additional
research.\40\ 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. For example, access to data on non-centrally cleared bilateral
repos would allow the Office to conduct research related to the
Council's analysis of potential risks arising from securities financing
activities and nonbank financial companies.
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\40\ 12 U.S.C. 5343(b)(2).
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Consistent with the Dodd-Frank Act, the Office may share the data
collection and information with the Council, Council member agencies,
and the Bureau of Economic Analysis \41\ and will also make the data
available to the Council and member agencies as necessary to support
their regulatory responsibilities.\42\ When sharing the data as
referenced above, the data and information: (i) must be maintained with
at least the same level of security as used by the Office; and (ii) may
not be shared with any individual or entity without the permission of
the Council.\43\ In addition, such sharing will be subject to the
confidentiality and security requirements of applicable laws, including
the Dodd-Frank Act.\44\ 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.\45\
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\41\ 12 U.S.C. 5343(b)(1).
\42\ 12 U.S.C. 5343(b), 12 U.S.C. 5344(b)(5).
\43\ 12 U.S.C. 5333(b)(5).
\44\ 12 U.S.C. 5343(b), 5344(b)(3).
\45\ 12 U.S.C. 5343(b), 5322(d)(5).
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After consultation with the member agencies as required under the
Dodd-Frank Act, certain data, including aggregate or summary data from
this proposed collection, may be provided to financial industry
participants and to the general 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.\46\
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\46\ 12 U.S.C. 5344(b)(6).
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c. Legal Authority
The ability of the Office to collect non-centrally cleared
bilateral 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.\47\ The Office consulted with the Council on the proposed
permanent collection of non-centrally cleared bilateral repo data at
the Council's July 28, 2022 meeting.\48\
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\47\ 12 U.S.C. 5344(b)(1)(B)(iii).
\48\ Financial Stability Oversight Council. Meeting Minutes, pg.
7. July 28, 2022. https://home.treasury.gov/system/files/256/FSOC_20220728_Minutes.pdf.
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The Office also has authority to promulgate regulations pursuant to
the Office's general rulemaking authority under section 153 of the
Dodd-Frank Act, which authorizes the Office to issue rules,
regulations, and orders to the extent necessary to carry out certain
purposes and duties of the Office.\49\ 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.\50\ The Office must consult with the
Chairperson of the Council prior to the promulgation of any rules under
section 153.\51\ As noted above, the Office consulted with the Council
on July 28, 2022.
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\49\ 12 U.S.C. 5343(a), (c)(1).
\50\ 12 U.S.C. 5343(a). The Council's purposes and duties
include identifying risks and responding to threats to U.S.
financial stability; monitoring the financial services marketplace
to identify potential threats to U.S. financial stability; making
recommendations 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).
\51\ 12 U.S.C. 5343(c)(1).
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This proposed collection would support the Council and member
agencies by addressing the Council's recommendation to expand and make
permanent the collection of data on the non-centrally cleared bilateral
repo market; helping the Council and member agencies identify, monitor,
and respond to risks to financial stability; and identifying gaps in
regulation that could pose risks to U.S. financial stability. The
Office has verified that transaction information on the non-centrally
cleared bilateral repo market required to fulfill the purposes of this
proposed collection is not currently available to the Council or member
agencies.
The Office's statutory authority allows for the collection of
transaction and position data from financial companies. ``Financial
company,'' for purposes of the Office's authority, has the same meaning
as in Title II of the Dodd-Frank Act.\52\ For this proposed collection,
the Office expects that covered reporters will be ``financial
companies'' as defined in Title II because they are
[[Page 1162]]
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 \53\
(or they are a subsidiary thereof). For a company to be ``predominantly
engaged'' in activities that are financial in nature or incidental
thereto, either (1) at least 85% of the total consolidated revenues of
the company (determined in accordance with applicable accounting
standards) 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% or more of the total consolidated revenues of the
company.
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\52\ 12 U.S.C. 5341(2).
\53\ 12 U.S.C. 1843(k).
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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, 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.\54\
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\54\ 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).
---------------------------------------------------------------------------
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 the types of entities proposed to be covered
reporters, including underwriting, dealing in or making a market in
securities; and lending, exchanging, transferring, investing for
others, or safeguarding money or securities. Given the level of
experience, expertise, and market credibility necessary for the
exposure thresholds proposed under this rule, such entities will likely
be financial companies and thus covered reporters. While the Office
currently expects few, if any, entities to meet the covered reporter
definition thresholds under the provision that requires non-Securities
Broker, non- securities dealer, non-government securities broker, or
non-government securities dealer financial companies to report, this
provision is explicitly limited to financial companies as defined in 12
U.S.C. 5341(2).
V. Collection Design
The proposed regulatory text lists the requirements specifically
relevant to this proposed collection. It also includes a table that
describes the data elements that covered reporters would 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 would require the submission of
transaction information by any covered reporter whose average daily
total outstanding commitments to borrow cash and extend guarantees
through non-centrally cleared bilateral repo contracts over all
business days during the prior calendar quarter is at least $10
billion. This materiality threshold is inclusive of both overnight and
intraday commitments. For example, for a given day, a reporter may have
two outstanding commitments to borrow beginning on the same day with an
overnight maturity:
First, the reporter has outstanding commitments to borrow
$100 million from customer A in exchange for $100 million of
securities.
Second, the reporter has commitments to lend customer B
$100 million in exchange for $100 million of securities.
In this example, the reporter's total gross outstanding commitments
for these two trades is $200 million and total outstanding commitments
to borrow cash is $100 million.
The Office proposes a focus on borrowing for reasons related to
both principle and practice. In principle, borrowers are the sources of
leverage in the financial system and are consequently naturally linked
to financial stability. From a practical standpoint, the same market
coverage can be achieved by sampling fewer borrowers than lenders.
Within a choice of market coverage on lenders, the diversity of lending
institution types is also greater and creates consequent operational
challenges in supporting a collection. Diversity in composition and
familiarity with reporting standards could also challenge the success
of a daily collection. Based on the above, the Office believes that the
focus on borrowers rather than lenders is an appropriate approach.
This proposed rule would require reporting under this materiality
threshold from two categories of financial companies:
Category 1: securities broker, securities dealers,
government securities brokers, and government securities dealers, all
as defined by and registered pursuant to the Securities Exchange Act of
1934 (Exchange Act),\55\ and
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\55\ The terms broker and dealer are defined in 15 U.S.C.
78c(a)(4), and (5), respectively. Broker and dealer registration
requirements are contained in 15 U.S.C. 78o. The terms government
securities broker and government securities dealer are defined in 15
U.S.C. 78c(a)(43) and (44), respectively. Government securities
broker and government securities dealer registration requirements
are contained in 15 U.S.C. 78o-5.
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Category 2: any financial company that is not a Securities
Broker, securities dealer, government securities broker, or government
securities dealer, whose average of daily total outstanding commitments
to borrow cash from or extend guarantees to lenders is at least $10
billion--through non-centrally cleared bilateral repo with any other
entity that is not in category 1--over all business days during the
prior calendar quarter. Additionally, the financial company in category
2 has assets or assets under management exceeding $1 billion if it
meets any one of the following criteria:
A. If an investment adviser registered pursuant to the Investment
Advisers Act of 1940 provides continuous and regular supervisory or
management services to securities portfolios valued at $1 billion or
more in assets under that law; or
B. If the firm is not an ``investment adviser,'' but it files a
required disclosure of its balance sheet with a primary financial
regulatory agency,\56\ and has more than $1 billion in assets under
that disclosure; or
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\56\ 12 U.S.C. 5301(12).
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C. If the firm does not file a required disclosure of its balance
sheet with a primary financial regulatory agency but it does file a
required disclosure with any other Federal financial regulator, and has
more than $1 billion in assets under that disclosure; or
D. If the firm does not file a required disclosure of its balance
sheet with any primary financial regulatory agency but it does file a
required disclosure with any state regulator, and has more than $1
billion in assets under that disclosure; or
[[Page 1163]]
E. If the firm does not file a required disclosure of its balance
sheet with any state regulator or primary financial regulatory agency
but its stated assets to outside investors or creditors in audited
financial statements, and has more than $1 billion in assets under that
disclosure; or
F. If the firm has not done any of the above but has disclosed
assets in filings with the Internal Revenue Service and has more than
$1 billion in assets under that disclosure.
The Office distinguishes between assets and assets under management
in the above sequence, because of how an agent acts on the part of
other parties. Investment advisers primarily provide investment
management services as fiduciary agents, using a wide variety of models
and vehicles. They engage in activities such as entering into
repurchase agreements, acting as cash borrowers, and buying and selling
derivatives on behalf of clients. These activities can take place at
the portfolio level or at the adviser level and then subsequently
allocated to their managed funds or portfolios. Unlike other financial
companies, the value of these services is not fully reflected on the
balance sheet of the adviser, except in advisory fee receivables. As a
result, the use of assets under management better represents the market
value of investment activities provided and should be used in the
threshold computation.
The Office is proposing the asset size threshold for financial
companies that are not Brokers, Dealers, government securities brokers
or government securities dealers in order to limit the set of financial
companies required to calculate their repo exposures to a grouping of
entities whose activities are consequential to the non-centrally
cleared bilateral repo market. Only financial companies included within
these categories and that meet the transaction volume threshold
discussed below would be required to report as covered reporters under
this proposed collection.
The Office believes the proposed $10 billion outstanding
commitments threshold indicates sufficient transactional volume for a
Securities Broker, securities dealer, government securities broker, or
government securities dealer to be considered material in the repo
market. In particular, the Office believes this threshold would cover
over 90% of the non-centrally cleared bilateral repo market, with
approximately 40 reporters. However, because of the lack of
transparency in this market noted above, there is necessarily some
uncertainty on the number of reporters and breadth of the market this
definition would include. As such, the Office is seeking comment on the
nature and level of the threshold.
By collecting from certain brokers, dealers, and financial
companies with large exposures to the repo market, the Office proposes
to leverage the existing structure of the repo market, where nearly all
trades are intermediated by either dealers, or financial companies who
play a similar role to brokers and dealers, based on the Office's
research. However, it is possible that some trades in the repo market
do not go through securities broker, securities dealers, government
securities brokers, or Government securities dealers. Due to the lack
of transparency in the non-centrally cleared bilateral repo market, the
market share of these ``peer-to-peer'' trades, which bypass traditional
intermediaries, is not knowable without an existing comprehensive
collection. Moreover, it is possible that peer-to-peer repo could
expand in the future as market structure evolves.
As a result, the Office is also proposing to include, in addition
to the categories of financial companies noted above, any financial
company that is not a Securities Broker, securities dealer, government
securities broker, or government securities dealer with over $1 billion
in assets or assets under management whose average of daily total
outstanding commitments to borrow cash (inclusive of both overnight and
all intraday transactions) through non-centrally cleared bilateral repo
from other entities that are not a Securities Broker, securities
dealer, government securities broker, or government securities dealer
is also at least $10 billion over all business days during the prior
calendar quarter. This formulation is intended to be flexible enough to
cover future developments in the market, including the emergence of new
entities replacing existing repo intermediaries. The Office is
requesting comment as to how prevalent the case of financial companies
fitting this definition would be.
Though the Office believes that few financial companies are likely
to fit this definition, it would require all financial companies with
greater than $1 billion in assets or assets under management to
determine whether they are covered reporters on a quarterly basis.
Since many financial companies have limits on their ability to borrow,
we believe that this requirement would apply to roughly 2,000 financial
companies.\57\ Assuming it takes three hours per quarter to determine
which counterparties to the firm are non-Securities Broker, non-
securities dealer, non-government securities broker, or non-government
securities dealer institutions and to calculate the average open
borrowings from these institutions, and using an estimated hourly wage
of $126, the Office estimates the cost for a single firm to determine
its reporting obligations on an ongoing annual basis of this provision
would be $1,512. This would lead to a total cost of $3.024 million
across all financial companies that would need to determine whether
they are covered reporters. The Office is also requesting comment on
whether these calculations are reasonable and in particular whether
there might be adjustments needed to its estimates of either the
ongoing annual cost per financial company or the total number of
financial companies that would need to make this determination on a
quarterly basis.
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\57\ This number is based an Office estimate of the number of
private funds, real estate investment trusts, pension funds, and
insurance funds that have over $1 billion in assets or assets under
management.
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The brokers, dealers, or other financial companies meeting the
thresholds above would be required to start submitting data under this
rulemaking beginning on the first business day of the third full
calendar quarter after the calendar quarter in which the firm meets the
relevant materiality threshold. For example, if such brokers, dealers,
or other financial companies were to surpass the threshold beginning
with the quarter ending on March 31 of a given year, those institutions
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 $10 billion
threshold for at least four consecutive calendar quarters would have
its reporting obligations cease. For example, if a broker, dealer, or
other financial company that is a covered reporter ceases to meet the
$10 billion threshold beginning with the quarter ending June 30 of a
given year, and remains below the $10 billion threshold in each of the
following three quarters (in this example, March 31 of the following
year), its reporting obligations would cease as of April 1.
Questions
1. Is the $10 billion materiality threshold for identifying
securities broker, securities dealers, government
[[Page 1164]]
securities brokers, and government securities dealers as covered
reporters clear and appropriate for ensuring the Office collects the
vast majority of transactions in the non-centrally cleared bilateral
repo market? Would a higher or lower threshold better accomplish the
goals of the collection? Would a threshold based on gross activity
(repo borrowing plus repo lending) be more appropriate for capturing
relevant brokers and dealers?
2. Please estimate the volume that would be missed by limiting the
collection to only capture transactions in which at least one of the
counterparties is a Securities Broker, securities dealer, government
securities broker, or government securities dealer.
3. How many non-Securities Broker, non-securities dealer, non-
government securities broker, or non-government securities dealer
financial companies would be included as covered reporters under the
provisions described above? Is the $1 billion in assets or assets under
management threshold an appropriate measure? What characteristics,
other than the ones defined, describe these financial companies?
4. Does the two-quarter phase-in period for certain brokers and
dealers that become covered reporters after the effective date of the
rule provide sufficient time to comply with the data reporting
requirements?
5. Are the Office's estimates of the ongoing annual cost of
determining whether a financial company with greater than $1 billion in
assets or assets under management is a covered reporter on a quarterly
basis and the number of companies that would likely be required to make
this determination reasonable? How could they be improved?
6. Are there other sources of assets or assets under management
which should be included in the threshold criteria?
b. Scope of Transactions
The Office is defining a non-centrally cleared bilateral repurchase
agreement transaction as one in which one party agrees to sell
securities to a second party in exchange for the receipt of cash, and
the simultaneous agreement of the former party to later reacquire the
same securities (or any subsequently substituted securities) from that
same second party in exchange for the payment of cash; or an agreement
of a party to acquire securities from a second party 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 party in exchange for the receipt
of cash. In all cases the agreement does not involve a tri-party
custodian nor is cleared with a central counterparty. This definition
includes, but is not limited to, transactions that are executed under a
Master Repurchase Agreement (MRA) or Global Master Repurchase Agreement
(GMRA), or which are agreed to by the parties as subject to the
provisions of 11 U.S.C. 559. The rights established in this code relate
to contractual characteristics of interest to the Office.
Notwithstanding the above, transactions conducted under a Securities
Lending Agreement (SLA) or a Master Securities Lending Agreement (MSLA)
are not considered repurchase agreements, nor are repurchase agreements
arising from either participation in a commercial mortgage loan or the
initial securitization of a residential mortgage loan. The reasons for
exclusion of all such transactions relate to their greater use to
support specific demands for securities. By contrast, repurchase
agreements more specifically relate to loan provisions. Additionally,
the Office has chosen to exclude MSLA and Global Master Securities
Lending Agreement (GMSLA) transactions from the proposed rule due to
the SEC's proposed Reporting of Securities Loans.\58\ As a result and
depending upon the form and timing of any final SEC rule, reporting
these transactions to the Office could be duplicative. Sell/buy-back
agreements have also been excluded because in lacking the contractual
documentation characteristics of other repo transactions, collateral
sales and repurchases are separated from borrowing and lending
commitments, respectively. While sell/buy-back agreements accomplish
similar goals to repo transactions, these agreements are recorded
differently from MRA, GMRA, MSLA, and GMSLA agreements and may have
contractual characteristics and names that are different from the
preceding types. The Office seeks comment on such assertions.
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\58\ Release No. 34-93613, Reporting of Securities Loans, 86 FR
69802, 69803, fn. 2. December 8, 2021.
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The Office has noted that some transactions that would be covered
under the proposed rule are likely to be with counterparties outside of
the United States (U.S.). Based on a review of relevant foreign
supervisory reporting requirements and outreach to industry, the Office
believes that because the proposed rule would only require reporting by
U.S. financial companies, there would be no intersection with the
financial companies covered by foreign collections. As a result, the
Office does not believe the proposed collection would require
duplicative reporting from financial companies that would be covered
under its rule.
Covered reporters would be required to report on all transactions
that meet the above-described characteristics. This would include
transactions by the covered reporter settled internationally or
denominated in currencies other than in U.S. dollars. Excluding
transactions settled outside of the U.S. would allow for covered
reporters to avoid reporting by choosing to conduct the same
transaction but settling that transaction outside the U.S. Meanwhile,
collecting data on repurchase agreements denominated in foreign
currencies would give the Office greater information on cross-border
exposures associated with repo borrowing.
Questions
1. The proposed rule text currently covers agreements under an MRA
or GMRA. The Office's experience with the 2015 OFR Bilateral Repo Pilot
yielded findings that equivalent trades to repurchase agreements are
often instead contractually executed under Securities Lending
Agreements or Master Securities Lending Agreements for reasons of
convenience.\59\
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\59\ Baklanova, Viktoria, Cecilia Caglio, Marco Cipriani, and
Adam Copeland. ``The U.S. Bilateral Repo Market: Lessons from a New
Survey.'' Brief no. 16-01, Washington, DC: Office of Financial
Research, January 13, 2016. https://www.financialresearch.gov/briefs/files/OFRbr-2016-01_US-Bilateral-Repo-Market-Lessons-from-Survey.pdf.
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a. How would potential reporters view the burden associated with
the inclusion of trades contractually executed on a principal basis
(i.e., not as a securities lending agent for another party) under an
SLA or MSLA? What burden would be associated with excluding trades
contractually executed under SLAs or MSLAs?
b. How do you view the economic comparability of repurchase
agreements and securities lending agreements executed against cash on a
principal basis?
c. Would it be useful to restrict the definition of repurchase
agreement to transactions under an GMRA or MRA? Would the volume of
reported transactions be substantially narrower under that definition?
d. What is the effect of referencing transactions agreed to by the
parties as being subject to 11 U.S.C. 559?
2. If the Office decided to collect information on sell/buy-back
transactions, do potential reporters foresee any burdens in reporting
those in the same format as repo transactions?
3. Are there other types of transactions the Office should consider
collecting in this or future collections?
[[Page 1165]]
4. How would reporting repo transactions also reported to foreign
supervisory authorities affect the reporting burden for covered
reporters?
5. How would reporting repurchase agreements denominated in
currencies other than dollars affect the reporting burden for covered
reporters?
c. Information Required
This proposed collection would require reporting on non-centrally
cleared bilateral repo trades, including detailed reporting about the
securities used to collateralize these trades and contractual specifics
of repurchase agreements. The required data elements are listed in the
table in Sec. 1610.11(c) of the proposed regulatory text. This table
is tailored to capture information regarding covered transactions in a
manner that the Office believes largely reflects the data generated by
covered reporters in the ordinary course of business. This 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
proposed collection and further detail on certain key data fields,
including financial data standards and identifiers. The definitions of
these data elements are based on the Office's research and experience
in both the 2015 and 2022 pilots and, as described in detail in the
subsections below, have been adapted to the Office's purposes for
financial stability monitoring in the repo market. Proposed required
information is also intended to promote the use of financial data
standards, in line with the Office's mandate under the Dodd-Frank Act
to collect and standardize data to support the Council in identifying
risks to U.S. financial stability.
ISO 20022
As an alternative to data element definitions developed by the
Office through direct consultation with market participants, the Office
is considering adopting the field definitions used in the repo
reporting messages in ISO 20022.\60\ Promoting these data standards has
advantages in terms of providing for greater consistency with other
potential collections in the future and with potential developments in
market practices. However, the Office believes that in their current
form, use of the relevant ISO 20022 definitions would not result in
reported data that is fit for the Office's financial stability
monitoring purposes. In some cases, this is because the current ISO
20022 field definitions are too broad. In other cases, the ISO 20022
field definitions focus only on information associated with the
transaction at the time of the trade, whereas the Office needs
information on transaction characteristics since inception (e.g.,
outstanding commitments). Reporting of outstanding commitments is
essential to the Office's focus on financial stability, since it allows
the Office to establish a full picture of the current leverage of
covered reporters and their counterparties. To that end, the Office is
proposing field definitions in the table in Sec. 1610.11(c) of the
proposed regulatory text.\61\
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\60\ The business component and its elements are described under
Repurchase Agreement in the ISO 20022 universal financial industry
message schema at https://www.iso20022.org/standardsrepository/type/RepurchaseAgreement.
\61\ https://www.iso20022.org/standardsrepository/type/RepurchaseAgreement.
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The Office is seeking comment on the extent to which the ISO 20022
standard is already used in the repo market, especially with respect to
those entities that would be required to report under the proposed
rule, and the potential utility of aligning the required data
submissions to the standard.
Questions
1. To what extent are financial companies already assigning and
using ISO 20022 standards in repo market transactions?
2. Are there advantages to be gained in the Office's ability to
monitor the repo market for purposes of financial stability analysis by
aligning the proposed data elements and definitions with the ISO 20022
standards?
3. Are there other voluntary consensus standards the Office should
consider to enhance its ability to monitor the repo market for purposes
of financial stability analysis?
4. How might the Office use this rule to improve data standards in
the non-centrally cleared bilateral repo market?
Legal Entity Identifier Usage
Authorities from around the world, including those in the U.S.,
have established a global legal entity identifier (LEI) system, with
oversight effected by a Regulatory Oversight Committee, composed of
those same authorities. A Swiss nonprofit foundation, the Global LEI
Foundation, was established to provide operational governance and
management of local operating units that issue LEIs.
The LEI is a 20-character identifier standard, established as ISO
17442, that identifies distinct legal entities engaging in financial
transactions. An LEI allows for unambiguous identification of firms and
affiliates.
In both the 2015 pilot and the 2022 pilot, the Office experienced
difficulties working with the non-centrally cleared bilateral repo
market data due to the absence of standardized counterparty
information. 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 includes fields for submitting the LEI of
each covered reporter and counterparty involved in a covered
transaction. Collecting the LEIs of these entities would facilitate
evaluation of the covered transactions and reduce the need for manual
intervention in matching identical participants that supply different
naming conventions depending on the reporting, and help identifying
parent and affiliate relationships. Finally, collecting the LEI would
allow the Office to form consistent mappings from the data collected
under this rulemaking to other existing data sets such as data
collected under the Office's centrally cleared data collection.
The Office's proposed rule would require covered reporters to
submit their LEI for each transaction. The proposed rule would also
require covered reporters to submit the counterparty's LEI for each
transaction, if available. The Office believes that all covered
reporters are likely to already possess valid LEIs.
LEIs must be properly maintained, meaning they must be kept current
and up to date according to the standards implemented by the Global LEI
Foundation. The proposed inclusion of the LEI as a mandatory data field
for such purposes, according to the defined standard, was widely
supported for the centrally cleared repo collection and continues to be
the globally accepted standard for legal entity identification.
Requiring the reporting of LEIs is consistent with the Office's
statutory purposes and duties of collecting data on behalf of the
Council, providing such data to the Council and member agencies, and
standardizing the types and formats of data reported and collected.
Mandatory reporting of the LEI would 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 2 million firms have obtained an
LEI and are therefore becoming capable of obtaining these benefits. The
[[Page 1166]]
aggregate cost savings for the financial service industry upon broader
adoption of the LEI have been estimated in the hundreds of millions of
dollars.\62\
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\62\ Office of Financial Research. Legal Entity Identifier--
Frequently Asked Questions. https://www.financialresearch.gov/data/legal-entity-identifier-faqs/.
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Questions
1. Do participants in non-centrally cleared bilateral repo markets
anticipate challenges obtaining, maintaining, and reporting LEIs?
Unique Transaction Identifier Usage
The Unique Transaction Identifier (UTI) is a globally unique
identifier for individual transactions in financial markets. Beginning
in 2014, regulators and other stakeholders across major financial
jurisdictions, including the Office, worked to harmonize transaction
reporting standards to be available for use across all financial
transactions, including repo transactions. The output of this work was
the UTI, ISO 23897, which was published in 2020 and allocates a unique
number to a financial transaction as agreed among the parties and/or
within the regulatory system under which it is formed. Since the UTI's
publication as an ISO standard in 2020, adoption has steadily
increased, including in new U.S. rulemaking.\63\ Looking forward, UTI
adoption across financial market sectors could allow for wider systemic
risk monitoring.
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\63\ https://www.sec.gov/rules/other/2021/ddr/exhibit-n-technical-specifications-narrative.pdf; and https://www.cftc.gov/LawRegulation/FederalRegister/finalrules/2020-21569.html.
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Adoption of the UTI as a reported element in this collection could
improve data quality by reducing the need for manual intervention in
matching identical transactions across counterparties, allowing the
Office to more effectively monitor and evaluate financial risk. The
Office has seen adoption of UTIs in data submitted under its 2022 non-
centrally cleared bilateral repo collection pilot. The Office believes
that requiring UTIs to be reported, whenever available, will promote
UTI use over the long term, conferring the anticipated benefits to data
quality, monitoring, and evaluation described above, without imposing
reporting costs on those market participants that do not currently
assign UTIs to their transactions. The Office's proposed rule therefore
requires covered reporters to submit UTIs for each reported
transaction, whenever a UTI exists. UTIs should only be reported for
new transactions covered under this proposed rule.
Questions
1. Do participants in the non-centrally cleared bilateral repo
market anticipate challenges assigning, recording, and sharing UTIs on
a transaction-level basis, including increased costs? If so, please
provide estimates of those costs.
2. Should the Office set construction criteria for the generation
of UTIs or is there sufficient existing market practice guidance for
expansion to the non-centrally cleared bilateral repo market?
Collateral Information
The collateral underlying a repurchase agreement is crucial to
assessing the exposures and risk management in the repo market.
Information on which securities are delivered into repo would allow the
Office to track common risk exposures across counterparties. The fields
proposed would also allow the Office to assess the extent to which
specific securities are tied to the repo market, and therefore
potential spillovers from the repo market into underlying asset
markets, with potential effects on liquidity and price efficiency.
Further details on valuation and quantities delivered would provide
the Office with information on margining practices. Knowing the
quantity of securities delivered would 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. The initial haircut and securities value at inception
of a trade gives further information on the initial over-
collateralization of trades. Knowing the value of the securities as of
the file observation date allows for computation of details on current
margins maintained by the firm. Finally, knowing the currency these
values are reported in allows for comparison across trades and allows
the Office to assess potential cross-border exposures through non-
centrally cleared bilateral repo. The Office proposes that these values
be reported in the currency of issuance of the underlying security,
since this value corresponds to the underlying price market
participants are likely to reference in their regular course of
business. However, there could be advantages in reporting securities
values in the same currency as used to denominate the start and end leg
cash of the repurchase agreement, since it may align with margining
practices.
Questions
1. Should the Office mandate reporting securities value in the
currency of issuance of the collateral or in the currency of the
repurchase agreement?
2. How are variation margin payments against non-centrally cleared
bilateral repurchase agreements determined? How do they regard
offsetting conventions and put in place netting practices? How may
these conventions and practices be reported in this collection?
Date and Tenor Information
This proposed collection would require information on the start and
end dates of transactions; the date and time that each transaction was
agreed to; and whether a trade has optionality. It would also require a
number of proposed fields regarding date and tenor information. The
trade timestamp is the date and time on which a transaction was agreed
to. This field is critical for differentiating same-day-start trades
from forward-settling trades. Information from this field is also
essential to understanding how a transaction is priced, and for
determining whether intra-day liquidity is scarce in the market. Intra-
day liquidity management has been linked to broader lack of liquidity
in September 2019 and March 2020.\64\
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\64\ Copeland, Adam, Darrell Duffie, and Yilin Yang. ``Reserves
Were Not So Ample After All.'' Working Paper no. 29090, Cambridge,
Massachusetts: National Bureau of Economic Research, 2021.
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Additionally, the proposed collection would define the start date
as the date on which a settlement obligation related to the exchange of
cash and securities for a transaction first exists. The end date refers
to the date on which the cash lenders to the transaction are obliged to
return the cash and securities. For trades with optionality, the Office
seeks to collect information on the minimum maturity of the trade, or
first date in which either party has the option to terminate a trade,
such as the call date for a callable trade or the next day for a daily
open trade. For trades with optionality the end date would represent
the date at which the trade would terminate if no option were exercised
and would be left blank for open trades which have no prespecified end
date.
For repos with optionality, the optionality field indicates how the
maturity of a transaction can be changed after initial agreement. This
information is important for determining the pricing of repurchase
agreements, since repo rates often depend on the options offered in the
agreement. Therefore, without data on optionality, comparisons may be
made between two
[[Page 1167]]
transactions with fundamentally different pricing, leading to erroneous
inferences by regulators.
Questions
1. Would there be any advantages to reporting end date and minimum
maturity separately? Would the inclusion of this additional field
impose significant costs on covered reporters?
2. Are there alternative definitions of trading timestamps that
would better capture the economics of the trade or correspond to
industry practice?
Trade Direction, Trade Size, and Rate
The proposed rule would involve reporting of the cash borrower and
the cash lender, and indicate whether the covered reporter is either of
those. The reported fields would indicate whether the trade is
guaranteed by the covered reporter. Additionally, the fields would
indicate the amounts of cash lent and borrowed by the cash lender and
cash borrower, respectively. This information is critical for
determining the net exposures of covered reporters to individual
securities as well as their overall cash position.
The proposed table would also include two fields on the exchange of
cash in these repo transactions. Information would be required on the
amount of cash exchanged by the cash borrowers and lenders at the
initiation and close of the trade. Where trades do not have a defined
close date, the proposed rule would require that the amount that would
be due at the first opportunity that either counterparty has the option
to end the trade be reported as the close leg amount. In addition, the
current cash amount field tracks the current amount of cash in the
trade after any adjustments to principal and the accrual of interest,
which allows researchers to assess the balance outstanding on open
trades for which the start leg may no longer be relevant.
The table would also require 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. Since some
term trades in non-centrally cleared bilateral repo are based on
floating rates, additional information is required for these trades.
This information includes the underlying benchmark interest rate used
for the trade, the spread used above this benchmark rate, and the reset
frequency of the benchmark. These fields give necessary detail on how
the trade has been priced, and on the reliance of repo trades on
specific benchmarks, which could lead to spillovers from the markets
used to calculate benchmarks into the repo market.
Risk Management
The proposed rule would require information on a covered reporter's
netting practices. This field would indicate whether the covered
reporter when acting as cash lender or cash borrower offsets, or nets,
repo exposures with the same counterparty across asset classes and
instrument types not restricted to the non-centrally cleared bilateral
repo market. Alternately, when netting occurs within the non-centrally
cleared bilateral repo market, the field would indicate the repo terms
on which netting occurs. These terms can include a variety of terms
including, but not limited to, repo maturity, collateral security,
counterparty, and optionality. Regarding these netting practices, the
field would indicate whether netting occurs across asset classes and
instruments outside of the non-centrally cleared bilateral repo market,
or at a transactional level within this market and when so, on what
repo terms.
Trade Venue
Finally, for trades which are placed through electronic trading
platforms, the proposed collection would require the name of the
platform used. This field allows the Office to capture information on
material service providers in the repo market. It also allows the
Office to assess the extent to which electronic platforms have been
adopted, since these platforms potentially allow for greater price
transparency and may lead to more flexibility in counterparty
relationships in the event of a crisis.
Questions
1. Are the proposed reporting fields generally appropriate? Do any
particular proposed reporting fields raise specific questions or
concerns?
2. 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?
3. Are the definitions in the proposed regulatory text clear, or
should any definitions be modified or added?
d. Submission Process and Implementation
The Office is currently reviewing options for the submission
process and implementation of the collection and, if the proposed rule
is adopted, may require submission either through the Office or through
a collection agent.
The Office proposes to require submissions no later than 11:00 a.m.
on the business day following the transaction. The proposed submission
process would allow for the secure, automated transmission of files.
The Office expects that, if the proposal is adopted, the final rule
would 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 90 days after its effective date. The Office believes
this implementation period would provide adequate time for covered
reporters to comply with the proposed requirements.
Questions
1. Does the proposed 90-day compliance period for a financial
company that is a covered reporter on the effective date of the rule
provide sufficient time to comply with the data reporting requirements?
2. Are there any additional costs associated with data reporting as
contemplated by this proposed collection? If so, please provide
estimates of those costs.
3. 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?
4. What, if any, difficulties could a non-centrally cleared
bilateral repo collection pose for placing non-centrally cleared
bilateral repo transactions? What, if any, consequences would this
collection have for repo market volumes or rates?
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).\65\ 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
[[Page 1168]]
Research at 717 14th Street NW, Washington, DC 20220.
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\65\ 44 U.S.C. 3501, et seq.
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The proposal would establish the permanent collection of certain
information on repo transactions and is a ``collection of information''
pursuant to the PRA. The Office is an independent regulatory agency
under the PRA \66\ 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.
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\66\ 44 U.S.C. 3502(5).
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The Office anticipates that this proposed collection would require
submission by 40 covered reporters, who would be required to submit
data daily in accordance with the table in the proposed regulatory
text. The Office anticipates an annual burden of 756 hours per covered
reporter. This figure is arrived at by estimating the daily reporting
time to be approximately 3 hours for submission 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 2021
Bureau of Labor Statistics Occupational Employment Statistics for
credit intermediation and related activities (North American Industry
Classification System (NAICS) 522000). For hourly compensation, a
figure of $84 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 50.4% to cover subsequent wage gains
and non-wage benefits, which yields an estimate of $126 per hour. Each
covered reporter must also obtain and maintain an LEI, which typically
costs $65, and then $50 annually. Using these assumptions, the Office
estimates the recurring operational costs for the submissions under
this proposed collection to be $95,306 annually for each covered
reporter and the total estimated annual costs for all expected covered
reporters is $3,812,240.
The Office also estimates that approximately 2,000 financial firms
would need to determine whether they are covered reporters on a
quarterly basis. The Office estimates this would take 3 hours per
quarter. The total estimated annual cost for these 2,000 financial
firms is $3,024,000. Combining the costs of the 40 covered reporters
and the 2,000 financial firms, the total recurring annual cost of the
data collection is estimated at $6,836,240.
Office Estimates Summary
Title: Ongoing Data Collection of Non-Centrally Cleared Bilateral
Transactions in the U.S. Repurchase Agreement Market.
Office: Office of Financial Research.
Frequency of Response: Daily (12 CFR 1610.11(d)).
Affected Public: Businesses or other for-profit.
Scope of Covered Reporters: Any party to a non-centrally cleared
bilateral repurchase agreement transaction that meets the definition of
financial company set forth in 12 U.S.C. 5341(2) and is: (i) A
Securities Broker, securities dealer, government securities broker, or
government securities dealer, each as defined under and registered
pursuant to the Securities Exchange Act of 1934 whose average daily
total outstanding commitments to borrow in non-centrally cleared
bilateral repurchase agreement transaction (prior to netting) with all
counterparties over all business days during the prior calendar quarter
is at least $10 billion; or (ii) any other entity whose assets or
assets under management are over $1 billion and whose average daily
outstanding commitments to borrow in non-centrally cleared bilateral
repurchase agreement transactions with counterparties that are not
included in (i) over all business days during the prior calendar
quarter is at least $10 billion. (12 CFR 1610.11(a), (b)(2)).
Number of Covered Reporters: 40 covered reporters.
Estimated Time per Covered Reporter per Submission: 3 hours.
Number of Submissions: Daily submission (12 CFR 1610.11(c)(3)).
Anticipated Annual Submissions: 252.
Total Estimated Annual Burden: 756 hours.
In addition to recurring reporting costs, the Office anticipates
covered reporters would 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 approximately 500 hours per covered
reporter. Because the Office anticipates 40 covered reporters the
estimated initial start-up cost of all required reporting is
$2,520,000.
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.\67\ 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.\68\ 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.
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\67\ 5 U.S.C. 601 et seq.
\68\ 5 U.S.C. 603(a).
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As discussed above, this proposed collection would only apply to
certain brokers and dealers whose average daily borrowing in non-
centrally cleared bilateral repo contracts over the prior calendar
quarter is at least $10 billion and to other financial companies with
over $1 billion in assets or assets under management and greater than
$10 billion whose average daily borrowing in non-centrally cleared
bilateral repo contracts over the prior calendar quarter from
counterparties who are also non-securities broker, non-securities
dealers, non-government securities brokers, or non-Government
securities dealers is at least $10 billion.
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 $750 million or less in assets.\69\ For purposes of the RFA,
entities that are banks are considered small entities if their assets
are less than or equal to $750 million. The size of the exposure-based
threshold in this
[[Page 1169]]
proposed collection ensures that any respondent will be well beyond
these small entity definitions.
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\69\ 13 CFR 121.201.
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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:
Questions
1. Are the requirements in the proposal clearly stated? If not, how
could the proposed rule be more clearly stated?
2. Does the proposed rule contain language or jargon that is not
clear? If so, which language requires clarification?
3. 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
Clearing, Confidential business information, Data collection,
Economic statistics, No central counterparty, Reference rates,
Repurchase agreements, No central counterparty.
For the reasons stated in the preamble, the Office of Financial
Research proposes to amend 12 CFR part 1610 as set forth below:
PART 1610--REGULATORY DATA COLLECTIONS
0
1. The authority citation for part 1610 continues to read as follows:
Authority: 12 U.S.C. 5343 and 5344.
0
2. Add Sec. 1610.11 to read as follows:
Sec. 1610.11 Non-centrally cleared Bilateral Repurchase Agreement
Data.
(a) Definitions. The following definitions are applicable in this
section:
Covered reporter means any financial company that meets the
criteria set forth in paragraph (b)(2) of this section; provided,
however, that any covered reporter shall cease to be a covered reporter
only if it does not meet the dollar thresholds specified in paragraph
(b)(2) of this section for at least four consecutive calendar quarters.
Financial company has the same meaning as in 12 U.S.C. 5341(2).
Government securities broker means any institution registered as a
government securities broker with the Securities and Exchange
Commission under the Securities Exchange Act of 1934.
Government securities dealer means any institution registered as a
government securities dealer with the Securities and Exchange
Commission under the Securities Exchange Act of 1934.
Investment adviser means any institution registered as an
investment adviser with the Securities and Exchange Commission under
the Investment Advisers Act of 1940.
Non-centrally cleared bilateral repurchase agreement transaction
means an agreement of one party to sell securities to a second party in
exchange for the receipt of cash, and the simultaneous agreement of the
former party to later reacquire the same securities (or any
subsequently substituted securities) from that same second party in
exchange for the payment of cash; or an agreement of a party to acquire
securities from a second party 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 party in exchange for the receipt of cash. The agreement does
not involve a tri-party custodian and is not cleared with a central
counterparty. This definition includes, but is not limited to,
transactions that are executed under a Master Repurchase Agreement
(MRA) or Global Master Repurchase Agreement (GMRA), or which are agreed
to by the parties as subject to the provisions of 11 U.S.C. 559.
Notwithstanding the above, transactions conducted under a Securities
Lending Agreement (SLA) or a Master Securities Lending Agreement (MSLA)
are not considered repurchase agreements, nor are repurchase agreements
arising from either participation in a commercial mortgage loan or the
initial securitization of a residential mortgage loan.
Outstanding commitment: The amount of financial obligations entered
into pursuant to any repurchase agreement which opens on, or is
outstanding as of, the file observation date, including transactions
which both opened and closed on the file observation date. These
financial obligations include all of those that exist prior to netting.
Securities broker means any institution registered as a broker with
the Securities and Exchange Commission under the Securities Exchange
Act of 1934.
Securities dealer means any institution registered as a dealer with
the Securities and Exchange Commission under the Securities Exchange
Act of 1934.
(b) Purpose and Scope--(1) Purpose. The purpose of this data
collection is to require the reporting of certain information to the
Office about non-centrally cleared bilateral repurchase agreement
transactions. The information will be used by the Office to fulfill its
responsibilities under title I of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, including support of the Council and Council
member agencies by facilitating financial stability monitoring and
research consistent with support of the Council and its member
agencies.
(2) Scope of Application. Reporting under this section is required
by any financial company that is party to a non-centrally cleared
bilateral repurchase agreement transaction that is:
(i) A Securities Broker, securities dealer, government securities
broker, or government securities dealer whose average daily outstanding
commitments to borrow and extend guarantees in non-centrally cleared
bilateral repurchase agreement transactions with counterparties over
all business days during the prior calendar quarter is at least $10
billion; and
(ii) Any other financial company with over $1 billion in assets or
assets under management whose average daily outstanding commitments to
borrow and extend guarantees in non-centrally cleared bilateral
repurchase agreement transactions, including commitments of all funds
for which the company serves as an investment adviser, with
counterparties that are not securities broker, securities dealers,
government securities brokers, or government securities dealers over
all business days during the prior calendar quarter is at least $10
billion.
(c) Data Required. (1) Covered reporters shall report trade and
collateral information on all non-centrally cleared bilateral
repurchase agreement transactions, subject to paragraph (c)(2) of this
section, in accordance with the prescribed reporting format in this
section.
(2) Covered reporters shall only report trade and collateral
information with respect to any non-centrally cleared bilateral
repurchase agreement transaction which opens on, or is outstanding as
of, the file observation
[[Page 1170]]
date, including transactions which both opened and closed on the file
observation date.
(3) Covered reporters shall submit the following data elements for
all transactions:
Table 1 to Paragraph (c)(3)
------------------------------------------------------------------------
Data element Explanation
------------------------------------------------------------------------
(1) File observation date.... The observation date of the file.
(2) Covered reporter LEI..... The Legal Entity Identifier of the
covered reporter.
(3) Cash lender LEI.......... The Legal Entity Identifier of the cash
lender.
(4) Cash lender name......... The legal name of the cash lender.
(5) Cash borrower name....... The legal name of the cash borrower.
(6) Cash borrower LEI........ The Legal Entity Identifier of the cash
borrower.
(7) Guarantee................ Indicator for whether the covered
reporter issued a guarantee with respect
to the transaction.
(8) Netting set.............. A descriptor to indicate for the
transaction whether the covered reporter
nets counterparty exposures across asset
classes and instruments outside of
repurchase agreements. When the covered
reporter does not net counterparty
exposures across asset classes and
instruments outside of repurchase
agreements, the descriptor indicates the
repurchase agreement terms on which
netting occurs.
(9) Transaction id........... The respondent-generated unique
transaction identifier in an
alphanumeric string format.
(10) Unique transaction ID... If available, the Unique Transaction ID
(UTI).
(11) Trading platform........ For transactions arranged using an
outside vendor's platform, the provider
of the platform.
(12) Trade timestamp......... The timestamp that the trade became an
obligation of the covered reporter or
the covered reporter's subsidiary.
(13) Start date.............. The start date of the repo.
(14) End date................ The date the repo matures.
(15) Minimum maturity date... The earliest possible date on which the
transaction could end in accordance with
its contractual terms (taking into
account optionality).
(16) Cash lender internal The internal identifier assigned to the
identifier. cash lender by the covered reporter, if
the covered reporter is not the cash
lender.
(17) Cash borrower internal The internal identifier assigned to the
identifier. cash borrower by the covered reporter,
if the covered reporter is not the cash
borrower.
(18) Start leg amount........ The amount of cash transferred to the
cash borrower on the open leg of the
transaction at inception of the
repurchase.
(19) Close leg amount........ The amount of cash to be transferred by
the cash borrower on the end date of the
transaction.
(20) Current cash amount..... The amount of cash to be transferred by
the cash borrower, inclusive of accrued
interest and principal as of the file
observation date.
(21) Start leg currency...... The currency which is used in the ``start
leg'' field.
(22) Rate.................... The rate of interest paid by the cash
borrower on the transaction, expressed
as an annual percentage rate on an
actual/360-day basis.
(23) Floating rate........... The benchmark interest rate upon which
the transaction is based.
(24) Floating rate reset The time period, in calendar days,
frequency. describing the frequency of the floating
rate resets.
(25) Spread.................. The contractual spread over the benchmark
rate referenced in the repurchase
agreement.
(26) Securities identifier The identifier type for the securities
type. transferred between cash borrower and
cash lender.
(27) Security identifier..... The identifier of securities transferred
between the cash borrower and the cash
lender in the repo.
(28) Securities quantity..... For fixed-income instruments, the par
amount of the transferred securities as
of the report date.
(29) Securities value........ The market value of the transferred
securities as of the close of business
on the file observation date, inclusive
of accrued interest.
(30) Securities value at The market value of the transferred
inception. securities at the inception of the
transaction, inclusive of accrued
interest.
(31) Securities value The currency which is used in the
currency. ``securities value'' and ``securities
value at inception'' fields.
(32) Haircut................. The difference between the market value
of the transferred securities and the
purchase price paid at the inception of
the transaction.
(33) Special instructions The covered reporter may characterize any
notes or comments. collateral with special instructions
notes or comments.
------------------------------------------------------------------------
(d) Reporting Process. The Office may either collect the data
itself or designate a collection agent for that purpose. Covered
reporters shall submit the required data for each business day by 11
a.m. Eastern time on the following business day.
(e) Compliance Date. (1) Any financial company that is a covered
reporter as of the effective date of this section shall comply with the
reporting requirements pursuant to this section 90 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.
(2) Any financial company 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 business day of the
third full calendar quarter following the calendar quarter in which
such financial company becomes a covered reporter.
James D. Martin,
Deputy Director for Operations Performing the Duties of the OFR
Director.
[FR Doc. 2022-28615 Filed 1-6-23; 8:45 am]
BILLING CODE 4810-AK-P
