The Treasury Market Practices Group (TMPG) is recommending that firms begin applying its repo risk management recommendations on a rolling basis, prioritizing their most material counterparty exposures and completing the process by June 2026, said Anna Nordstrom, head of the Markets Group at the New York Federal Reserve, in a recent speech.
This extended implementation period, which was informed by feedback from market participants, is intended to allow time to evaluate their current risk management frameworks, legal agreements, policies, and procedures as well as allow time for critical work on the expansion of central clearing in the Treasury repo market to continue.
The adoption of these recommended best practices will contribute to improvements to the risk management of the Treasury repo market as a whole. Given the size of the Treasury repo market—with over $8 trillion in daily average transaction volume—and its interconnectedness with other segments of financial markets, sound risk management is critical.
Among the recommendations is a call to apply haircuts to Treasury repos on the values of the securities, in concert with other risk management techniques, as appropriate. In addition, the new best practice states that legal documentation “should describe, in all material respects, the margining regime.”
“Widespread use of haircuts for Treasury repo could enhance financial system stability and support market functioning during periods of stress,” she said.