82 FR 58397 - Production of Rates Based on Data for Repurchase Agreements

FEDERAL RESERVE SYSTEM

Federal Register Volume 82, Issue 237 (December 12, 2017)

Page Range		58397-58400
FR Document		2017-26761

The Board of Governors of the Federal Reserve System (Board) is announcing the production and publication of three rates by the Federal Reserve Bank of New York (FRBNY), in coordination with the U.S. Office of Financial Research (OFR), based on data for overnight repurchase agreement transactions on Treasury securities.

Federal Register, Volume 82 Issue 237 (Tuesday, December 12, 2017)

[Federal Register Volume 82, Number 237 (Tuesday, December 12, 2017)]
[Notices]
[Pages 58397-58400]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2017-26761]

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FEDERAL RESERVE SYSTEM

[Docket Number OP-1573]

Production of Rates Based on Data for Repurchase Agreements

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is announcing the production and publication of three rates by the
Federal Reserve Bank of New York (FRBNY), in coordination with the U.S.
Office of Financial Research (OFR), based on data for overnight
repurchase agreement transactions on Treasury securities.

DATES: FRBNY intends to begin publishing the three rates during the
second quarter of 2018.

FOR FURTHER INFORMATION CONTACT: David Bowman, Associate Director,
(202-452-2334), Division of International Finance; or Christopher W.
Clubb, Special Counsel (202-452-3904), Evan Winerman, Counsel (202-872-
7578), Legal Division; for users of Telecommunications Device for the
Deaf (TDD) only, contact (202-263-4869).

SUPPLEMENTARY INFORMATION:

I. Background

On August 30, 2017, the Board published a notice and request for
public comment (Request for Information) on the proposal that FRBNY, in
coordination with OFR, produce and publish three rates based on
overnight repurchase agreement (repo) transactions on U.S. Treasury
securities (Treasury repo).\1\ The three rates (collectively, the
``Treasury repo rates'') would be based on transaction-level data from
various segments of the repo market.
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\1\ 82 FR 41259 (Aug. 30, 2017). The Request for Information
included a detailed overview of the Treasury repo market.
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A. Summary of Proposed Rates

Rate 1: Tri-Party General Collateral Rate (TGCR)
The Request for Information indicated that this rate would be a
measure of rates on overnight, specific-counterparty tri-party Treasury
general collateral (GC) repo. This rate would be calculated based on
transaction-level tri-party repo data collected from the Bank of New
York Mellon (BNYM) under the Board's supervisory authority. The rate
would exclude General Collateral Finance (GCF) Repo[supreg] cleared by
the Fixed Income Clearing Corporation (FICC) and transactions in which
a Federal Reserve Bank is a counterparty.\2\
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\2\ A Federal Reserve Bank may enter into bilateral and tri-
party Treasury repos in order to implement monetary policy. Because
all three proposed rates were intended to reflect rates on trades
between market participants, it was proposed that all would exclude
Federal Reserve repos.
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Rate 2: Broad General Collateral Rate (BGCR)
The Request for Information indicated that this rate would provide
a broad measure of rates on overnight Treasury GC repo transactions.
The rate would be calculated based on the same transaction-level tri-
party repo data collected from BNYM as in the TGCR plus GCF Repo data
obtained from DTCC Solutions LLC (DTCC Solutions), an affiliate of the
Depository Trust & Clearing Corporation (DTCC).
Rate 3: Secured Overnight Financing Rate (SOFR)
The Request for Information indicated that this rate would provide
a broad measure of the general cost of financing Treasury securities
overnight. The rate would be calculated based on the tri-party data
from BNYM and GCF Repo data from DTCC Solutions used to calculate the
BGCR, plus bilateral Treasury repo transactions cleared through FICC's
Delivery-versus-Payment (DVP) service, filtered to remove some (but not
all) transactions considered ``specials.'' \3\ This rate would not be a
pure GC repo rate, but would offer the broadest measure of dealers'
cost of financing Treasury securities overnight.
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\3\ ``Specials'' are repos for specific-issue collateral, which
can take place at much lower rates than GC trades because cash
providers may be willing to accept a lesser return on their cash, or
even at times accept a negative return, in order to secure a
particular security. The Request for Information noted that FRBNY
could filter out specials by simply excluding the lowest quartile of
bilateral transaction volume.
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B. Proposed Calculation of and Publication of the Rates

The Request for Information stated that FRBNY would use a volume-
weighted median as the central tendency measure for each of the three
Treasury repo rates described above. FRBNY would publish summary
statistics to accompany the daily publication of the rate, which would
consist of the 1st, 25th, 75th and 99th volume-weighted percentile
rates, as well as volumes.
The Request for Information included a target publication time of
8:30 a.m. ET. The Request for Information stated that the rates would
be revised only on a same-day basis, and only if the revision would
result in a shift in the volume-weighted median by more than one

[[Page 58398]]

basis point. Such revisions would be effected that same day at or
around 2:30 p.m. ET and would result in a republication of updated
summary statistics. If relevant data sources were unavailable, the
Request for Information stated that the rates would be calculated based
upon back-up repo market survey data collected from FRBNY's primary
dealer counterparties. In such circumstances, the Request for
Information indicated that FRBNY might revise the summary statistics or
publish additional summary statistics on a lagged basis.
For each rate, the Request for Information stated that FRBNY would
exclude trades between affiliated entities when relevant and when the
data to make such exclusions is available. To the extent possible,
``open'' trades for which pricing resets daily (making such
transactions economically similar to overnight transactions) would be
included in the calculation of the rates.
Finally, the Request for Information stated that each of the rates
could be modified in the future in response to market evolution or to
incorporate additional market segments if data become available.

II. Public Comments

The Board received twelve comments on the Request for Information
from financial institutions and industry associations. Certain
commenters focused on possible uses of the proposed rates, including
the possibility that the proposed rates (particularly SOFR) could serve
as reference rates for financial contracts. Other commenters focused on
the calculation, publication, and governance of the proposed rates.

A. Uses of the Proposed Rates

Commenters suggested that the proposed rates would be useful
because they would provide a comprehensive view of pricing in the
Treasury repo market, would provide a good proxy for a risk-free rate,
would provide useful information regarding overnight demand and supply
for funding, and could facilitate the creation of futures contracts
that would allow market participants to hedge Treasury repos and spot-
market Treasury purchases. Most commenters who expressed a view on the
potential uses of the proposed rates suggested that SOFR would be more
useful than the other rates because SOFR would provide a broader
measure of pricing in the Treasury repo market.
Other commenters raised concerns regarding the possible use of SOFR
as a replacement for the London Interbank Offered Rate (LIBOR) in
financial contracts. For example, a number of commenters believed that
U.S. dollar LIBOR should be replaced with term reference rates or rates
that reflect bank credit risk in ways that are similar to U.S. dollar
LIBOR. Some commenters also noted difficulties in amending certain
existing contracts (e.g., syndicated loan and corporate bond contracts)
to replace U.S. dollar LIBOR.
Based on public comments, the Board believes that market
participants could use the proposed Treasury repo rates in a variety of
ways. The Board recognizes that the proposed rates could be used as
reference rates in financial contracts, and that the Alternative
Reference Rates Committee (ARRC) has selected SOFR as its recommended
alternative to U.S. Dollar LIBOR.\4\ The Board notes, however, that the
proposal to publish these rates was not contingent upon the ARRC's
selection of SOFR or the possible use of SOFR (or either of the other
proposed rates) as a reference rate in financial contracts. As noted in
the Request for Information, the publication of the Treasury repo rates
is intended to improve transparency into the repo market by increasing
the amount and quality of information available about the market for
overnight Treasury repo activity. This information could be useful to
market participants in a variety of ways. To the extent that market
participants choose to use SOFR or another of the Treasury repo rates
as a reference rate, details regarding the transition from U.S. Dollar
LIBOR to that rate in particular markets are outside the scope of the
Request for Information and this final Federal Register notice.
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\4\ See https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf.
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B. Calculation, Publication, and Governance of the Proposed Rates

The Board received a number of comments on the calculation,
publication, and governance of the proposed rates. Commenters discussed
the types of data that FRBNY will include in the rates, FRBNY's
calculation methodology, and various issues related to publication and
governance of the rates.
1. Data Sources
Three commenters suggested that the Federal Reserve and OFR should
consider including additional Treasury repo activity in the proposed
rates (e.g., uncleared bilateral repos, FICC's Sponsored DVP Repo
Service, and FICC's new CCIT^TM Service) and should adopt a
clear mechanism for including additional Treasury repo activity in the
future. As noted in the Request for Information, each of the Treasury
repo rates could be modified in the future in response to market
evolution or to incorporate additional market segments if data become
available. The Federal Reserve and OFR will monitor trading activity in
new market segments and will consult with the public in deciding
whether to include new data sources in the Treasury repo rates or make
other compositional or methodological changes to the rates. The Board
also notes that (1) FRBNY cannot currently include data regarding
uncleared bilateral repos in the Treasury repo rates because there is
no available data source for such information and (2) SOFR will include
data from FICC's Sponsored DVP Repo Service.
A commenter asked the Board to provide more information regarding
FRBNY's contract to acquire data from DTCC Solutions, stating that
additional information would help market participants evaluate
potential risks related to loss of access to data. The Federal Reserve
and OFR are confident that the combination of the relevant provisions
of the contract with DTCC Solutions and the data collection authorities
of the OFR and Federal Reserve will ensure that they will be able to
continue to produce robust rates under a variety of circumstances. In
this regard, the Board notes that OFR informed the Financial Stability
Oversight Council on November 16, 2017, that it intends to propose an
information collection in the first half of 2018 to collect data
regarding cleared repo transactions.\5\
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\5\ See https://www.financialresearch.gov/from-the-management-team/2017/11/22/ofr-update-on-bilateral-repo-collection/.
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Finally, a commenter suggested that the Board should use its
supervisory authority to ensure that BNYM conducts its tri-party
operations properly, including appropriate business continuity and
other risk contingency planning. BNYM is a State member bank and is
subject to comprehensive supervision by the Federal Reserve.\6\ In
particular, the Federal Reserve supervises BYNM's tri-party
operations.\7\
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\6\ See, inter alia, section 9 of the Federal Reserve Act (12
U.S.C. 321 et seq.) and the Board's Regulation H (12 CFR part 208).
\7\ The Board notes that the Federal Reserve has taken a variety
of steps in recent years that have made tri-party repo
infrastructure more resilient. See https://www.newyorkfed.org/banking/tpr_infr_reform.html.
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2. Calculation Methodology
Two commenters supported the proposal to calculate the Treasury
repo

[[Page 58399]]

rates using a volume-weighted median approach. One commenter suggested,
however, that a volume-weighted average might be more appropriate
because SOFR could have a bimodal distribution, with one peak
representing relatively low tri-party rates and a second peak
reflecting higher rates for GCF repos and repos cleared through FICC's
DVP service. This commenter believed that, if SOFR has a bimodal
distribution, small changes in the relative volumes of the two peaks
could result in significant shifts in the median rate. FRBNY will use a
volume-weighted median approach because, compared to a volume-weighted
mean approach, it is more robust to erroneous data and outliers and
more frequently reflects a transacted rate. Although the aggregation of
heterogeneous market segments increases the risk of a multimodal
distribution, FRBNY's historical analysis indicates that use of a
volume-weighted median did not materially increase the volatility of
the rate and that small shifts in the data did not cause significant
shifts in the median rate. The Federal Reserve and OFR will review the
composition and methodology of the rates over time and, as noted above,
will consult with the public in deciding whether to make any
compositional or methodological changes.
Multiple commenters asked the Board to clarify how FRBNY will trim
specials from the proposed rates. One commenter supported exclusion of
all bilateral transactions below the 25th volume-weighted percentile
rate, while two commenters stated that they would need more data to
evaluate whether this approach is sensible. Another commenter suggested
other possible techniques for excluding outlier transactions. Federal
Reserve and OFR staff considered several techniques for trimming
specials activity, including removing all transactions collateralized
by on-the-run and first-off-the-run securities.\8\ The Board confirms
that FRBNY will trim specials by excluding from the FICC-cleared
bilateral data all transactions with rates below the 25th volume-
weighted percentile. Analysis of various volume-weighted percentile
thresholds revealed that excluding all activity trading below the 25th
percentile rate struck an appropriate balance between removing the
largest number of specials transactions and maintaining robust volume
to use in calculating a rate.\9\ This approach effectively removes
transactions with rates that are notably lower than other transactions
in the FICC-cleared bilateral data set, which indicates that the
removed transactions are specials.
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\8\ See Kathryn Bayeux, Alyssa Cambron, Marco Cipriani, Adam
Copeland, Scott Sherman, and Brett Solimine, ``Introducing the
Revised Broad Treasuries Financing Rate,'' Federal Reserve Bank of
New York Liberty Street Economics (blog), June 19, 2017, http://libertystreeteconomics.newyorkfed.org/2017/06/introducing-the-revised-broad-treasuries-financing-rate.html; Bowman, David, Joshua
Louria, Matthew McCormick, and Mary-Frances Styczynski (2017). ``The
Cleared Bilateral Repo Market and Proposed Repo Benchmark Rates,''
FEDS Notes. Washington: Board of Governors of the Federal Reserve
System, February 27, 2017, https://doi.org/10.17016/2380-7172.1940.
\9\ For a fuller explanation of this approach, see ``Introducing
the Revised Broad Treasuries Financing Rate,'' http://libertystreeteconomics.newyorkfed.org/2017/06/introducing-the-revised-broad-treasuries-financing-rate.html.
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A commenter requested more information about how FRBNY will include
``open'' trades in the proposed rates. Open transactions are
transactions with no specific maturity date for which the interest rate
is periodically reset upon agreement by both borrower and lender.
Although there are many forms of open transactions with different reset
periods, those with daily rate resets are economically very similar to
overnight transactions. On January 24, 2017, the Treasury Market
Practices Group recommended a new best practice in the recording of
daily-resetting open trades, which is expected to make daily-resetting
trades easier to differentiate from open trades with different reset
periods.\10\
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\10\ See https://www.newyorkfed.org/medialibrary/microsites/tmpg/files/best-practices-tripartyrepo-170124.pdf.
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Two commenters noted that SOFR tends to spike at quarter-ends and
suggested that FRBNY apply a ``smoothing'' mechanism to minimize
volatility of the proposed rates. The Board recognizes that rates in
some segments of the Treasury repo market currently tend to increase at
quarter-ends, but FRBNY will not apply a smoothing mechanism to the
Treasury repo rates because doing so would provide an inaccurate view
of that day's pricing in the Treasury repo market.
Finally, one commenter suggested that, even though the proposed
rates would exclude transactions in which a Federal Reserve Bank is a
counterparty, Federal Reserve activity in repo markets might distort
rates in Treasury repos that do not involve a Federal Reserve Bank. The
Federal Reserve implements monetary policy through multiple types of
financial transactions, including repos. These open market operations
affect all money market rates. The Board nevertheless believes that the
Treasury repo rates will provide market participants with a transparent
and comprehensive view of pricing in the Treasury repo market.
3. Publication Issues
One commenter stated that the proposed 8:30 a.m. ET publication
time was appropriate. Another commenter asked the Federal Reserve to
consider carefully whether publishing the rates at 8:30 a.m. would
impact efficient market functioning. Three commenters believed that the
proposed rates should be published earlier, explaining that 8:30 a.m.
publication would be too late for some foreign financial markets and on
certain days would coincide with some U.S. economic data releases.
FRBNY will shift the publication time at least as early as 8:00 a.m. ET
to avoid coincident release with key U.S. economic data. The Board and
FRBNY will consider whether FRBNY can publish Treasury repo rates even
earlier, but operational constraints--for example, constraints on the
ability of FRBNY's data providers to produce and deliver data overnight
and the time required for FRBNY to perform data validation and quality
assurance processes--may prevent earlier publication.
A commenter asked for an explanation of how FRBNY would publish the
proposed rates. FRBNY will publish the Treasury repo rates on its
public website, similar to the manner in which FRBNY currently
publishes the effective federal funds rate (EFFR) and the overnight
bank funding rate (OBFR).\11\
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\11\ See https://apps.newyorkfed.org/markets/autorates/fed%20funds and https://apps.newyorkfed.org/markets/autorates/obfr.
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Four commenters supported the proposal to publish summary
statistics. One of these commenters suggested, however, that publishing
statistics from the 1st and 99th percentiles would not be informative,
and that FRBNY should instead publish summary statistics for
percentiles between the 1st and 25th/75th and 99th percentiles (e.g.,
the 5th and 95th percentiles). Initially, FRBNY will publish summary
statistics as described in the Request for Information, and may publish
additional percentiles on a lagged basis. After FRBNY begins publishing
the Treasury repo rates, FRBNY will reassess whether market
participants would benefit from additional summary statistics.
Three commenters requested that FRBNY publish historical data for
SOFR. Commenters believed that historical data would serve a number of
purposes--for example, commenters suggested that historical data would
help market participants determine

[[Page 58400]]

margin requirements for derivatives that reference SOFR and would help
market participants compare SOFR to existing benchmarks. The Board
recognizes that market participants might benefit from historical data.
While longer histories of comparable commercially produced repo rates
are publicly available, the Board believes that a significantly longer
history of the Treasury repo rates may not be possible due to
limitations on the availability of data. The Board and FRBNY will work
with BNYM and DTCC to determine whether FRBNY can publish additional
historical data for the Treasury repo rates.
Two commenters suggested that the proposed threshold of ``greater
than one basis point'' for revising the proposed rates was too
sensitive. Another commenter explained that its members had not
achieved consensus on the threshold at which FRBNY should revise
errors, but the commenter emphasized that FRBNY should articulate a
clear rationale for its revision policy. The Board notes that, because
FRBNY will round the Treasury repo rates to the nearest whole basis
point, the threshold is effectively two basis points. The Board also
notes that this is the same threshold employed for EFFR and OBFR, for
which revisions are very rare. The Federal Reserve will periodically
review the revision threshold to ensure that revisions are very rare
and do not impose undue operational costs on users of the Treasury repo
rates.
A commenter asked whether FRBNY would publish the proposed rates if
relevant data sources were unavailable and, if so, whether FRBNY would
correct such rates retroactively when data becomes available. Another
commenter suggested that FRBNY should provide more information
regarding the back-up repo market survey it would conduct if standard
data sources are unavailable. As noted in the Request for Information,
in the event that data sources are unavailable, the Treasury repo rates
would be calculated based upon back-up repo market survey data
collected from FRBNY's primary dealer counterparties. FRBNY currently
collects repo data from primary dealers each morning. Going forward,
FRBNY will also collect data each afternoon. The afternoon survey will
capture that day's activity by primary dealers and will be available as
a contingency data source for the following morning's publication of
the Treasury repo rates. The survey will request aggregated primary
dealer activity in each of the market segments captured in the Treasury
repo rates: Overnight tri-party Treasury repo transactions, overnight
Treasury repo transactions in the GCF market, and FICC-cleared
bilateral Treasury repo transactions. For each of these market
segments, each dealer will report its aggregate borrowing activity
(excluding, to the extent possible, transactions between affiliated
entities and transactions in which the Federal Reserve is a
counterparty), along with the weighted-average rate of its borrowing.
If FRBNY publishes Treasury repo rates that use survey data and
subsequently receives updated data, FRBNY would issue same-day
revisions at or around 2:30 p.m. ET if the use of updated data would
result in the published rate changing by more than one basis point.
Finally, two commenters asked that FRBNY begin publishing the
Treasury repo rates as soon as possible. FRBNY intends to begin
publishing the Treasury repo rates in the second quarter of 2018.
4. Governance
A commenter suggested that governance arrangements for the Treasury
repo rates should align with the Principles for Financial Benchmarks
published by the International Organization of Securities Commissions
(IOSCO) in July 2013.\12\ FRBNY plans to publish an IOSCO statement of
compliance covering the Treasury repo rates in the first half of 2018.
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\12\ See https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf.
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III. Conclusion

After considering public comments, the Board concludes that the
public would benefit if FRBNY publishes the three Treasury repo rates
as proposed, with certain modifications described above.

IV. Administrative Law

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR part 1320, Appendix A.1), the Board reviewed the Request
for Information and this final notice under the authority delegated to
the Board by the Office of Management and Budget. For purposes of
calculating burden under the Paperwork Reduction Act, a ``collection of
information'' involves 10 or more respondents. As noted above, the data
to be used to produce the rates will be obtained solely from (1) BNYM
with respect to tri-party GC repo data and (2) DTCC Solutions with
respect to GCF repo data and DVP bilateral repo data. Therefore,
producing the rates will not involve a collection of information
pursuant to the Paperwork Reduction Act.
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires an agency to perform an initial and a final
regulatory flexibility analysis on the impact a rule is expected to
have on small entities. The RFA imposes these requirements in
situations where an agency is required by law to publish a general
notice of proposed rulemaking for any proposed rule. The production of
the rates does not create any obligations or rights for any private
parties, including any small entities, and so the Board was not
required to publish a notice of proposed rulemaking. Accordingly, the
RFA does not apply and an initial and final regulatory flexibility
analysis is not required.
The Board did not receive any comments regarding the Paperwork
Reduction Act or the RFA.

By order of the Board of Governors of the Federal Reserve
System, December 7, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017-26761 Filed 12-11-17; 8:45 am]
BILLING CODE 6210-01-P

Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Notices 58397

company and its subsidiaries as the FEDERAL RESERVE SYSTEM transactions in which a Federal Reserve
Board may require.’’ (12 U.S.C. Bank is a counterparty.2
1467a(b)(2)). The obligation to respond [Docket Number OP–1573] Rate 2: Broad General Collateral Rate
is mandatory for exempt SLHCs. In (BGCR)
some cases, lower-tier SLHCs may Production of Rates Based on Data for
voluntarily file the FR 2320. In other Repurchase Agreements The Request for Information indicated
that this rate would provide a broad
cases lower-tier SLHCs may be required AGENCY: Board of Governors of the measure of rates on overnight Treasury
to file (in addition to the top-tier SLHC) Federal Reserve System. GC repo transactions. The rate would be
for safety and soundness purposes at the calculated based on the same
ACTION: Notice.
discretion of the appropriate Federal transaction-level tri-party repo data
Reserve Bank. SUMMARY: The Board of Governors of the collected from BNYM as in the TGCR
The Board also has determined that Federal Reserve System (Board) is plus GCF Repo data obtained from
data items C572, C573, and C574 (line announcing the production and DTCC Solutions LLC (DTCC Solutions),
items 24, 25, and 26) may be protected publication of three rates by the Federal an affiliate of the Depository Trust &
from disclosure under exemption 4 of Reserve Bank of New York (FRBNY), in Clearing Corporation (DTCC).
the Freedom of Information Act (FOIA). coordination with the U.S. Office of
Financial Research (OFR), based on data Rate 3: Secured Overnight Financing
Commercial or financial information Rate (SOFR)
may be protected from disclosure under for overnight repurchase agreement
transactions on Treasury securities. The Request for Information indicated
exemption 4 if disclosure of such
DATES: FRBNY intends to begin that this rate would provide a broad
information is likely to cause substantial measure of the general cost of financing
competitive harm to the provider of the publishing the three rates during the
second quarter of 2018. Treasury securities overnight. The rate
information. (5 U.S.C. 552(b)(4)). The would be calculated based on the tri-
data items listed above pertain to new FOR FURTHER INFORMATION CONTACT:
party data from BNYM and GCF Repo
or changed pledges, or capital stock of David Bowman, Associate Director, data from DTCC Solutions used to
any subsidiary savings association that (202–452–2334), Division of calculate the BGCR, plus bilateral
secures short-term or long-term debt or International Finance; or Christopher W. Treasury repo transactions cleared
other borrowings of the SLHC; changes Clubb, Special Counsel (202–452–3904), through FICC’s Delivery-versus-Payment
to any class of securities of the SLHC or Evan Winerman, Counsel (202–872– (DVP) service, filtered to remove some
any of its subsidiaries that would 7578), Legal Division; for users of (but not all) transactions considered
negatively impact investors; and Telecommunications Device for the Deaf ‘‘specials.’’ 3 This rate would not be a
(TDD) only, contact (202–263–4869). pure GC repo rate, but would offer the
defaults of the SLHC or any of its
subsidiaries during the quarter. SUPPLEMENTARY INFORMATION: broadest measure of dealers’ cost of
Disclosure of this type of information is I. Background financing Treasury securities overnight.
likely to cause substantial competitive B. Proposed Calculation of and
On August 30, 2017, the Board
harm to the SLHC providing the Publication of the Rates
published a notice and request for
information and thus this information public comment (Request for The Request for Information stated
may be protected from disclosure under Information) on the proposal that that FRBNY would use a volume-
FOIA exemption 4. FRBNY, in coordination with OFR, weighted median as the central
With regard to the remaining data produce and publish three rates based tendency measure for each of the three
items on the FR 2320, the Board has on overnight repurchase agreement Treasury repo rates described above.
determined that institutions may (repo) transactions on U.S. Treasury FRBNY would publish summary
request confidential treatment for any securities (Treasury repo).1 The three statistics to accompany the daily
FR 2320 data item or for all FR 2320 rates (collectively, the ‘‘Treasury repo publication of the rate, which would
data items, and that confidential rates’’) would be based on transaction- consist of the 1st, 25th, 75th and 99th
treatment will be reviewed on a case-by- level data from various segments of the volume-weighted percentile rates, as
case basis. repo market. well as volumes.
The Request for Information included
Current actions: On August 23, 2017, A. Summary of Proposed Rates a target publication time of 8:30 a.m. ET.
the Federal Reserve published a notice Rate 1: Tri-Party General Collateral Rate The Request for Information stated that
in the Federal Register (82 FR 40000) (TGCR) the rates would be revised only on a
requesting public comment for 60 days same-day basis, and only if the revision
on the extension, without revision, of The Request for Information indicated would result in a shift in the volume-
the Quarterly Savings and Loan Holding that this rate would be a measure of weighted median by more than one
Company Report. The comment period rates on overnight, specific-counterparty
tri-party Treasury general collateral (GC)
for this notice expired on October 23, 2 A Federal Reserve Bank may enter into bilateral
repo. This rate would be calculated and tri-party Treasury repos in order to implement
2017. The Board did not receive any
based on transaction-level tri-party repo monetary policy. Because all three proposed rates
comments. were intended to reflect rates on trades between
data collected from the Bank of New
Board of Governors of the Federal Reserve market participants, it was proposed that all would
York Mellon (BNYM) under the Board’s exclude Federal Reserve repos.
System, December 7, 2017. supervisory authority. The rate would
ethrower on DSK3G9T082PROD with NOTICES

3 ‘‘Specials’’ are repos for specific-issue collateral,

Ann E. Misback, exclude General Collateral Finance which can take place at much lower rates than GC
Secretary of the Board. (GCF) Repo® cleared by the Fixed trades because cash providers may be willing to
Income Clearing Corporation (FICC) and accept a lesser return on their cash, or even at times
[FR Doc. 2017–26710 Filed 12–11–17; 8:45 am] accept a negative return, in order to secure a
BILLING CODE 6210–01–P particular security. The Request for Information
1 82 FR 41259 (Aug. 30, 2017). The Request for noted that FRBNY could filter out specials by
Information included a detailed overview of the simply excluding the lowest quartile of bilateral
Treasury repo market. transaction volume.

VerDate Sep<11>2014 20:03 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00020 Fmt 4703 Sfmt 4703 E:\FR\FM\12DEN1.SGM 12DEN1

58398 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Notices

basis point. Such revisions would be contracts. For example, a number of additional Treasury repo activity in the
effected that same day at or around 2:30 commenters believed that U.S. dollar future. As noted in the Request for
p.m. ET and would result in a LIBOR should be replaced with term Information, each of the Treasury repo
republication of updated summary reference rates or rates that reflect bank rates could be modified in the future in
statistics. If relevant data sources were credit risk in ways that are similar to response to market evolution or to
unavailable, the Request for Information U.S. dollar LIBOR. Some commenters incorporate additional market segments
stated that the rates would be calculated also noted difficulties in amending if data become available. The Federal
based upon back-up repo market survey certain existing contracts (e.g., Reserve and OFR will monitor trading
data collected from FRBNY’s primary syndicated loan and corporate bond activity in new market segments and
dealer counterparties. In such contracts) to replace U.S. dollar LIBOR. will consult with the public in deciding
circumstances, the Request for Based on public comments, the Board whether to include new data sources in
Information indicated that FRBNY believes that market participants could the Treasury repo rates or make other
might revise the summary statistics or use the proposed Treasury repo rates in compositional or methodological
publish additional summary statistics a variety of ways. The Board recognizes changes to the rates. The Board also
on a lagged basis. that the proposed rates could be used as notes that (1) FRBNY cannot currently
For each rate, the Request for reference rates in financial contracts, include data regarding uncleared
Information stated that FRBNY would and that the Alternative Reference Rates bilateral repos in the Treasury repo rates
exclude trades between affiliated Committee (ARRC) has selected SOFR because there is no available data source
entities when relevant and when the as its recommended alternative to U.S. for such information and (2) SOFR will
data to make such exclusions is Dollar LIBOR.4 The Board notes, include data from FICC’s Sponsored
available. To the extent possible, however, that the proposal to publish DVP Repo Service.
‘‘open’’ trades for which pricing resets these rates was not contingent upon the A commenter asked the Board to
daily (making such transactions ARRC’s selection of SOFR or the provide more information regarding
economically similar to overnight possible use of SOFR (or either of the FRBNY’s contract to acquire data from
transactions) would be included in the other proposed rates) as a reference rate DTCC Solutions, stating that additional
calculation of the rates. in financial contracts. As noted in the information would help market
Finally, the Request for Information Request for Information, the publication participants evaluate potential risks
stated that each of the rates could be of the Treasury repo rates is intended to related to loss of access to data. The
modified in the future in response to improve transparency into the repo Federal Reserve and OFR are confident
market evolution or to incorporate market by increasing the amount and that the combination of the relevant
additional market segments if data quality of information available about provisions of the contract with DTCC
become available. the market for overnight Treasury repo Solutions and the data collection
activity. This information could be authorities of the OFR and Federal
II. Public Comments Reserve will ensure that they will be
useful to market participants in a variety
The Board received twelve comments able to continue to produce robust rates
of ways. To the extent that market
on the Request for Information from under a variety of circumstances. In this
participants choose to use SOFR or
financial institutions and industry regard, the Board notes that OFR
another of the Treasury repo rates as a
associations. Certain commenters informed the Financial Stability
reference rate, details regarding the
focused on possible uses of the Oversight Council on November 16,
transition from U.S. Dollar LIBOR to
proposed rates, including the possibility 2017, that it intends to propose an
that rate in particular markets are
that the proposed rates (particularly information collection in the first half of
outside the scope of the Request for
SOFR) could serve as reference rates for 2018 to collect data regarding cleared
Information and this final Federal
financial contracts. Other commenters repo transactions.5
Register notice.
focused on the calculation, publication, Finally, a commenter suggested that
and governance of the proposed rates. B. Calculation, Publication, and the Board should use its supervisory
Governance of the Proposed Rates authority to ensure that BNYM conducts
A. Uses of the Proposed Rates its tri-party operations properly,
The Board received a number of
Commenters suggested that the including appropriate business
comments on the calculation,
proposed rates would be useful because continuity and other risk contingency
publication, and governance of the
they would provide a comprehensive planning. BNYM is a State member bank
proposed rates. Commenters discussed
view of pricing in the Treasury repo and is subject to comprehensive
the types of data that FRBNY will
market, would provide a good proxy for supervision by the Federal Reserve.6 In
include in the rates, FRBNY’s
a risk-free rate, would provide useful particular, the Federal Reserve
calculation methodology, and various
information regarding overnight supervises BYNM’s tri-party
issues related to publication and
demand and supply for funding, and operations.7
governance of the rates.
could facilitate the creation of futures
2. Calculation Methodology
contracts that would allow market 1. Data Sources
participants to hedge Treasury repos Two commenters supported the
Three commenters suggested that the
and spot-market Treasury purchases. proposal to calculate the Treasury repo
Federal Reserve and OFR should
Most commenters who expressed a view consider including additional Treasury 5 See https://www.financialresearch.gov/from-the-
on the potential uses of the proposed repo activity in the proposed rates (e.g., management-team/2017/11/22/ofr-update-on-
rates suggested that SOFR would be
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uncleared bilateral repos, FICC’s bilateral-repo-collection/.
more useful than the other rates because Sponsored DVP Repo Service, and 6 See, inter alia, section 9 of the Federal Reserve

SOFR would provide a broader measure FICC’s new CCITTM Service) and should Act (12 U.S.C. 321 et seq.) and the Board’s
of pricing in the Treasury repo market. Regulation H (12 CFR part 208).
adopt a clear mechanism for including 7 The Board notes that the Federal Reserve has
Other commenters raised concerns
taken a variety of steps in recent years that have
regarding the possible use of SOFR as a 4 See https://www.newyorkfed.org/medialibrary/ made tri-party repo infrastructure more resilient.
replacement for the London Interbank microsites/arrc/files/2017/ARRC-press-release-Jun- See https://www.newyorkfed.org/banking/tpr_infr_
Offered Rate (LIBOR) in financial 22-2017.pdf. reform.html.

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Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Notices 58399

rates using a volume-weighted median various volume-weighted percentile comprehensive view of pricing in the
approach. One commenter suggested, thresholds revealed that excluding all Treasury repo market.
however, that a volume-weighted activity trading below the 25th
3. Publication Issues
average might be more appropriate percentile rate struck an appropriate
because SOFR could have a bimodal balance between removing the largest One commenter stated that the
distribution, with one peak representing number of specials transactions and proposed 8:30 a.m. ET publication time
relatively low tri-party rates and a maintaining robust volume to use in was appropriate. Another commenter
second peak reflecting higher rates for calculating a rate.9 This approach asked the Federal Reserve to consider
GCF repos and repos cleared through effectively removes transactions with carefully whether publishing the rates at
FICC’s DVP service. This commenter rates that are notably lower than other 8:30 a.m. would impact efficient market
believed that, if SOFR has a bimodal transactions in the FICC-cleared functioning. Three commenters believed
distribution, small changes in the bilateral data set, which indicates that that the proposed rates should be
relative volumes of the two peaks could the removed transactions are specials. published earlier, explaining that 8:30
result in significant shifts in the median A commenter requested more a.m. publication would be too late for
rate. FRBNY will use a volume- information about how FRBNY will some foreign financial markets and on
weighted median approach because, include ‘‘open’’ trades in the proposed certain days would coincide with some
compared to a volume-weighted mean rates. Open transactions are transactions U.S. economic data releases. FRBNY
approach, it is more robust to erroneous with no specific maturity date for which will shift the publication time at least as
data and outliers and more frequently the interest rate is periodically reset early as 8:00 a.m. ET to avoid coincident
reflects a transacted rate. Although the upon agreement by both borrower and release with key U.S. economic data.
aggregation of heterogeneous market lender. Although there are many forms The Board and FRBNY will consider
segments increases the risk of a of open transactions with different reset whether FRBNY can publish Treasury
multimodal distribution, FRBNY’s periods, those with daily rate resets are repo rates even earlier, but operational
historical analysis indicates that use of economically very similar to overnight constraints—for example, constraints on
a volume-weighted median did not transactions. On January 24, 2017, the the ability of FRBNY’s data providers to
materially increase the volatility of the Treasury Market Practices Group produce and deliver data overnight and
rate and that small shifts in the data did recommended a new best practice in the the time required for FRBNY to perform
not cause significant shifts in the recording of daily-resetting open trades, data validation and quality assurance
median rate. The Federal Reserve and which is expected to make daily- processes—may prevent earlier
OFR will review the composition and resetting trades easier to differentiate publication.
methodology of the rates over time and, from open trades with different reset A commenter asked for an
as noted above, will consult with the periods.10 explanation of how FRBNY would
public in deciding whether to make any Two commenters noted that SOFR publish the proposed rates. FRBNY will
compositional or methodological tends to spike at quarter-ends and publish the Treasury repo rates on its
changes. suggested that FRBNY apply a public website, similar to the manner in
Multiple commenters asked the Board ‘‘smoothing’’ mechanism to minimize which FRBNY currently publishes the
to clarify how FRBNY will trim specials volatility of the proposed rates. The effective federal funds rate (EFFR) and
from the proposed rates. One Board recognizes that rates in some the overnight bank funding rate
commenter supported exclusion of all segments of the Treasury repo market (OBFR).11
bilateral transactions below the 25th currently tend to increase at quarter- Four commenters supported the
volume-weighted percentile rate, while ends, but FRBNY will not apply a proposal to publish summary statistics.
two commenters stated that they would smoothing mechanism to the Treasury One of these commenters suggested,
need more data to evaluate whether this repo rates because doing so would however, that publishing statistics from
approach is sensible. Another provide an inaccurate view of that day’s the 1st and 99th percentiles would not
commenter suggested other possible pricing in the Treasury repo market. be informative, and that FRBNY should
techniques for excluding outlier Finally, one commenter suggested instead publish summary statistics for
transactions. Federal Reserve and OFR that, even though the proposed rates percentiles between the 1st and 25th/
staff considered several techniques for would exclude transactions in which a 75th and 99th percentiles (e.g., the 5th
trimming specials activity, including Federal Reserve Bank is a counterparty, and 95th percentiles). Initially, FRBNY
removing all transactions collateralized Federal Reserve activity in repo markets will publish summary statistics as
by on-the-run and first-off-the-run might distort rates in Treasury repos described in the Request for
securities.8 The Board confirms that that do not involve a Federal Reserve Information, and may publish
FRBNY will trim specials by excluding Bank. The Federal Reserve implements additional percentiles on a lagged basis.
from the FICC-cleared bilateral data all monetary policy through multiple types After FRBNY begins publishing the
transactions with rates below the 25th of financial transactions, including Treasury repo rates, FRBNY will
volume-weighted percentile. Analysis of repos. These open market operations reassess whether market participants
8 See Kathryn Bayeux, Alyssa Cambron, Marco
affect all money market rates. The Board would benefit from additional summary
Cipriani, Adam Copeland, Scott Sherman, and Brett nevertheless believes that the Treasury statistics.
Solimine, ‘‘Introducing the Revised Broad repo rates will provide market Three commenters requested that
Treasuries Financing Rate,’’ Federal Reserve Bank participants with a transparent and FRBNY publish historical data for
of New York Liberty Street Economics SOFR. Commenters believed that
(blog), June 19, 2017, http://
ethrower on DSK3G9T082PROD with NOTICES

libertystreeteconomics.newyorkfed.org/2017/06/
9 For a fuller explanation of this approach, see historical data would serve a number of
introducing-the-revised-broad-treasuries-financing- ‘‘Introducing the Revised Broad Treasuries purposes—for example, commenters
Financing Rate,’’ http://
rate.html; Bowman, David, Joshua Louria, Matthew
libertystreeteconomics.newyorkfed.org/2017/06/
suggested that historical data would
McCormick, and Mary-Frances Styczynski (2017).
‘‘The Cleared Bilateral Repo Market and Proposed introducing-the-revised-broad-treasuries-financing- help market participants determine
Repo Benchmark Rates,’’ FEDS Notes. Washington: rate.html.
Board of Governors of the Federal Reserve System, 10 See https://www.newyorkfed.org/medialibrary/ 11 See https://apps.newyorkfed.org/markets/

February 27, 2017, https://doi.org/10.17016/2380- microsites/tmpg/files/best-practices-tripartyrepo- autorates/fed%20funds and https://
7172.1940. 170124.pdf. apps.newyorkfed.org/markets/autorates/obfr.

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58400 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Notices

margin requirements for derivatives that Treasury repo transactions in the GCF The Regulatory Flexibility Act (5
reference SOFR and would help market market, and FICC-cleared bilateral U.S.C. 601 et seq.) (RFA) generally
participants compare SOFR to existing Treasury repo transactions. For each of requires an agency to perform an initial
benchmarks. The Board recognizes that these market segments, each dealer will and a final regulatory flexibility analysis
market participants might benefit from report its aggregate borrowing activity on the impact a rule is expected to have
historical data. While longer histories of (excluding, to the extent possible, on small entities. The RFA imposes
comparable commercially produced transactions between affiliated entities these requirements in situations where
repo rates are publicly available, the and transactions in which the Federal an agency is required by law to publish
Board believes that a significantly Reserve is a counterparty), along with a general notice of proposed rulemaking
longer history of the Treasury repo rates the weighted-average rate of its for any proposed rule. The production
may not be possible due to limitations borrowing. If FRBNY publishes of the rates does not create any
on the availability of data. The Board Treasury repo rates that use survey data obligations or rights for any private
and FRBNY will work with BNYM and and subsequently receives updated data, parties, including any small entities,
DTCC to determine whether FRBNY can FRBNY would issue same-day revisions and so the Board was not required to
publish additional historical data for the at or around 2:30 p.m. ET if the use of publish a notice of proposed
Treasury repo rates. updated data would result in the rulemaking. Accordingly, the RFA does
Two commenters suggested that the published rate changing by more than not apply and an initial and final
proposed threshold of ‘‘greater than one one basis point. regulatory flexibility analysis is not
basis point’’ for revising the proposed Finally, two commenters asked that required.
rates was too sensitive. Another FRBNY begin publishing the Treasury The Board did not receive any
commenter explained that its members repo rates as soon as possible. FRBNY comments regarding the Paperwork
had not achieved consensus on the intends to begin publishing the Treasury Reduction Act or the RFA.
threshold at which FRBNY should repo rates in the second quarter of 2018. By order of the Board of Governors of the
revise errors, but the commenter Federal Reserve System, December 7, 2017.
emphasized that FRBNY should 4. Governance
Ann E. Misback,
articulate a clear rationale for its
A commenter suggested that Secretary of the Board.
revision policy. The Board notes that,
governance arrangements for the [FR Doc. 2017–26761 Filed 12–11–17; 8:45 am]
because FRBNY will round the Treasury
Treasury repo rates should align with
repo rates to the nearest whole basis BILLING CODE 6210–01–P

point, the threshold is effectively two the Principles for Financial Benchmarks
basis points. The Board also notes that published by the International
this is the same threshold employed for Organization of Securities Commissions DEPARTMENT OF HEALTH AND
EFFR and OBFR, for which revisions are (IOSCO) in July 2013.12 FRBNY plans to HUMAN SERVICES
very rare. The Federal Reserve will publish an IOSCO statement of
periodically review the revision compliance covering the Treasury repo Centers for Medicare & Medicaid
threshold to ensure that revisions are rates in the first half of 2018. Services
very rare and do not impose undue III. Conclusion [CMS–6063–N3]
operational costs on users of the
Treasury repo rates. After considering public comments, Medicare Program; Extension of Prior
A commenter asked whether FRBNY the Board concludes that the public Authorization for Repetitive Scheduled
would publish the proposed rates if would benefit if FRBNY publishes the Non-Emergent Ambulance Transports
relevant data sources were unavailable three Treasury repo rates as proposed,
and, if so, whether FRBNY would with certain modifications described AGENCY: Centers for Medicare &
correct such rates retroactively when above. Medicaid Services (CMS), HHS.
data becomes available. Another ACTION: Notice.
IV. Administrative Law
commenter suggested that FRBNY SUMMARY: This notice announces a 1-
should provide more information In accordance with the Paperwork
year extension of the Medicare Prior
regarding the back-up repo market Reduction Act of 1995 (44 U.S.C. 3506;
Authorization Model for Repetitive
survey it would conduct if standard data 5 CFR part 1320, Appendix A.1), the
Scheduled Non-Emergent Ambulance
sources are unavailable. As noted in the Board reviewed the Request for
Transport. The extension of this model
Request for Information, in the event Information and this final notice under
is applicable to the following states and
that data sources are unavailable, the the authority delegated to the Board by
the District of Columbia: Delaware,
Treasury repo rates would be calculated the Office of Management and Budget.
Maryland, New Jersey, North Carolina,
based upon back-up repo market survey For purposes of calculating burden
Pennsylvania, South Carolina, Virginia,
data collected from FRBNY’s primary under the Paperwork Reduction Act, a
and West Virginia.
dealer counterparties. FRBNY currently ‘‘collection of information’’ involves 10
DATES: This extension began on
collects repo data from primary dealers or more respondents. As noted above,
each morning. Going forward, FRBNY the data to be used to produce the rates December 5, 2017 and ends on
will also collect data each afternoon. will be obtained solely from (1) BNYM December 1, 2018. However, prior
The afternoon survey will capture that with respect to tri-party GC repo data authorization is available upon
day’s activity by primary dealers and and (2) DTCC Solutions with respect to provider, supplier, or beneficiary
will be available as a contingency data GCF repo data and DVP bilateral repo request for dates of service between
ethrower on DSK3G9T082PROD with NOTICES

source for the following morning’s data. Therefore, producing the rates will December 2, 2017 and December 4,
publication of the Treasury repo rates. not involve a collection of information 2017.
The survey will request aggregated pursuant to the Paperwork Reduction FOR FURTHER INFORMATION CONTACT:
primary dealer activity in each of the Act. Angela Gaston, (410) 786–7409.
market segments captured in the Questions regarding the Medicare Prior
Treasury repo rates: Overnight tri-party 12 See https://www.iosco.org/library/pubdocs/pdf/ Authorization Model Extension for
Treasury repo transactions, overnight IOSCOPD415.pdf. Repetitive Scheduled Non-Emergent

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Document Created: 2018-10-25 10:47:33
Document Modified: 2018-10-25 10:47:33

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice.
Dates		FRBNY intends to begin publishing the three rates during the second quarter of 2018.
Contact		David Bowman, Associate Director, (202-452-2334), Division of International Finance; or Christopher W. Clubb, Special Counsel (202-452-3904), Evan Winerman, Counsel (202-872- 7578), Legal Division; for users of Telecommunications Device for the Deaf (TDD) only, contact (202-263-4869).
FR Citation		82 FR 58397