The Federal Reserve Bank of New York, in cooperation with the Treasury Department’s Office of Financial Research, is considering publishing three benchmark rates based on overnight repurchase agreement (repo) transactions collateralized by Treasury securities. The publication of these rates, targeted for initial publication by late 2017 or early 2018, is intended to improve transparency of the repo market by increasing the amount and quality of information available about the market for overnight Treasury general collateral (GC) repo. The three proposed overnight Treasury GC repo benchmark rates would be based upon transaction-level data from various segments of the repo market:
First rate: As currently envisioned, this rate would be based on transaction-level data from tri-party repo clearing platforms.1 This rate would not include Federal Reserve transactions in the repo market.
Second rate: As currently envisioned, this rate would be based on the same transaction-level data as the first rate plus tri-party activity occurring within the Depository Trust & Clearing Corporation’s (DTCC) General Collateral Financing (GCF) Service. This rate would not include Federal Reserve transactions in the repo market.
Third rate: As currently envisioned, this rate would be based on the same transaction-level data as the second rate plus the Federal Reserve’s overnight open market operations in the repo market.2
The New York Fed expects to work with the Board of Governors of the Federal Reserve System to seek public comment on the composition and calculation methodology for these rates before adopting a final publication plan. With this in mind, one or more of the rates could be modified over time, as appropriate, to incorporate additional data sources, such as information on bilateral repo transactions. In the construction and publication of these benchmark repo rates, the New York Fed will endeavor to adopt policies and procedures consistent with best practices for financial benchmarks, to the extent appropriate.
Tri-party Data Collection for Overnight Treasury GC Repo Rate
These rates would rely on several sources of transaction-level data. Initially, this would include tri-party repo data collected from Bank of New York Mellon (BNYM), GCF data that would need to be obtained from DTCC, and data on Federal Reserve repo transactions that are available to the New York Fed as the entity that conducts open market operations for the System Open Market Account at the direction of the FOMC.
Proposed Calculation Methodology and Summary Statistics
Each benchmark repo rate would be calculated as a volume-weighted median of trades, in line with the calculation of the Effective Federal Funds Rate and Overnight Bank Funding Rate. Additional summary statistics, such as transaction volume and measures of dispersion, would accompany the publication.
1 Because JPMC has announced the firm’s exit from the tri-party settlement and clearing business, the New York Fed would initially utilize only data collected from BNYM. BNYM’s share of the market should be representative of the tri-party market as JPMC expects to have the majority of their clients transferred to the BNYM system in the near future.
2 Under current conditions, these open market operations only include daily overnight reverse repo transactions, which are being conducted on a temporary basis, though in the future this could include other fixed-price and fixed-quantity open market operations executed in the Treasury repo market.