The U.S. Office of Financial Research adopted a final rule today to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.
The daily collection will enhance the ability of the Financial Stability Oversight Council to identify and monitor potential risks to U.S. financial stability by closing the data gap related to centrally cleared repo transactions.
The collection will also support the calculation of certain reference rates, particularly alternatives to the U.S. dollar London Interbank Offered Rate (LIBOR). LIBOR has been used as a benchmark to set interest rates on trillions of dollars of home mortgages, private student loans, corporate loans, derivatives, and other financial products. LIBOR participation declined after LIBOR-related misconduct, creating the need by industry and regulators for an alternative.
As a result of this need, the Federal Reserve formed the industry-led Alternative Reference Rates Committee, which selected the Secured Overnight Financing Rate (SOFR) as the preferred LIBOR alternative. Cleared repo data from the collection will be used to enhance the production of the SOFR. The data collection will help inform U.S. financial regulators and market participants about potential risks in the financial system, while helping to fill an important need for a LIBOR alternative with minimal regulatory burden.
Following a Notice of Proposed Rulemaking on July 10, 2018, the OFR received a handful of substantive comments — all supporting the proposed collection and citing its benefits.
The rule requires the submission of information by central counterparties with average daily total open repo commitments of at least $50 billion. The Fixed Income Clearing Corporation would be the only market participant required to report if the collection began today, but other firms could meet the eligibility criteria for reporting in the future.
The collection is expected to begin in mid-October. Reporting instructions for covered reporters are posted on the OFR website here.
The OFR worked closely with the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, and others in drafting the rule. The rule will become effective 60 days after publication in the Federal Register.