[Federal Register Volume 83, Number 132 (Tuesday, July 10, 2018)]
[Proposed Rules]
[Pages 31896-31911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14706]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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  Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / 
Proposed Rules  

[[Page 31896]]



DEPARTMENT OF THE TREASURY

Office of Financial Research

12 CFR Part 1610

RIN 1505-AC58


Ongoing Data Collection of Centrally Cleared Transactions in the 
U.S. Repurchase Agreement Market

AGENCY: Office of Financial Research, Treasury.

ACTION: Proposed rule.

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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 centrally cleared transactions 
in the U.S. repurchase agreement market. This proposed collection will 
require daily reporting to the Office by covered central 
counterparties. The Office expects that the Board of Governors of the 
Federal Reserve System will act as the Office's collection agent, with 
required data to be submitted directly to the Federal Reserve Bank of 
New York. The collected data will be used to support the Financial 
Stability Oversight Council and as inputs to reference rates.

DATES: Comments must be received by September 10, 2018.

ADDRESSES: You may submit comments, identified by [RIN 1505-AC58], by 
any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Matthew Reed, Chief Counsel, or Patrick Bittner, 
Senior Counsel, Office of the Chief Counsel, Office of Financial 
Research, 717 14th Street NW, Washington, DC 20220.
    Instructions: All submissions received must include the agency name 
and RIN 1505-AC58 for this rulemaking. 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 to http://www.regulations.gov, including 
any personal information provided.
    For access to the docket to read background documents or comments 
received, go to http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Patrick Bittner, Senior Counsel, (202) 
927-0035, [email protected]; Matthew McCormick, Research 
Economist, (202) 927-8215, [email protected].

SUPPLEMENTARY INFORMATION: 

I. Executive Summary
II. Repurchase Agreement Market Background
    a. Importance of Repurchase Agreement Markets and Associated 
Vulnerabilities
    i. Low-Risk Option for Cash Investment/Deposit Substitute
    ii. Monetizing Liquid Assets
    iii. Transformation of Collateral
    iv. Facilitating Hedging
    v. Supporting Secondary Market Efficiency and Liquidity
    b. Structure of the U.S. Repurchase Agreement Market
    c. Data Available on U.S. Repurchase Agreement Activity
    i. Tri-Party Repurchase Agreements
    ii. Centrally Cleared General Collateral Repurchase Agreements
    iii. Centrally Cleared Specific-Security Repurchase Agreements
    iv. Uncleared Bilateral Repurchase Agreements
III. Alternative Reference Rate Background
IV. Justification for Proposed Collection
    a. Collection of Centrally Cleared Repurchase Agreement Data
    i. Importance of Centrally Cleared Repurchase Agreement Data for 
Monitoring Financial Stability Risks
    ii. Importance of Centrally Cleared Repurchase Agreement Data to 
Alternative Reference Rates
    b. Uses of the Data Collection
    c. Legal Authority
V. Collection Design
    a. Scope of Application
    b. Information Required
    i. Legal Entity Identifier Usage
    ii. Transaction Information
    iii. Date and Tenor Information
    iv. Trade Size and Rate
    v. Price of Collateral/Security
    c. 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 centrally 
cleared transactions in the U.S. repurchase agreement market 
(``proposed collection''). This proposed collection will require 
reporting by certain U.S. central counterparties (``CCPs'') for 
repurchase agreement (``repo'') transactions. This proposed collection 
will serve two primary purposes: (1) Enhance the ability of the 
Financial Stability Oversight Council (``Council'') and the Office to 
identify and monitor risks to financial stability; and (2) support the 
calculation of certain reference rates. 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. 
The Council recommended a permanent collection of repo data in its 2016 
annual report to Congress and, as required by law, the Office consulted 
with the Council on the schedule of collection in September 2016.\1\ 
The Council maintained this recommendation in its 2017 annual report. 
This proposed collection will require reporting on centrally cleared 
repo transactions, which comprise approximately one-quarter of all repo 
market transactions, marking an important step toward fully addressing 
the Council recommendation.
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    \1\ See Minutes of the Financial Stability Oversight Council 
(September 22, 2016), https://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/September222016_minutes.pdf and 12 U.S.C. 
Sec.  5344(b)(1)(B)(iii).
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    The expanded monitoring of the repo market made possible by this 
proposed collection appropriately helps fulfill the Council's duties 
and purposes because of this market's crucial role in providing short-
term funding and performing other functions for U.S. markets, making it 
important for financial stability monitoring. The data will also 
support the calculation of the Secured Overnight Funding Rate 
(``SOFR''), which was selected by the Alternative Reference Rates 
Committee (``ARRC'') as its preferred alternative rate to U.S. dollar 
London Interbank Offered Rate (``LIBOR''), as well as the Broad General 
Collateral Rate (``BGCR''), helping fulfill

[[Page 31897]]

another Council recommendation on the creation of alternative reference 
rates.\2\
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    \2\ See Financial Stability Oversight Council, 2014 Annual 
Report, p. 10; 2015 Annual Report, p. 17; 2016 Annual Report, pp. 
14-15; and 2017 Annual Report, pp. 12-13, https://www.treasury.gov/initiatives/fsoc/studies-reports/Pages/2017-Annual-Report.aspx.
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II. Repurchase Agreement Market Background

    A repo transaction is the sale of assets, combined with an 
agreement to repurchase the assets on a specified 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 provider 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 using cash as 
collateral to borrow securities and to finance securities holdings. 
Central banks also use repos as an important monetary policy tool.\3\ 
The interest rate on repo borrowing is calculated from the difference 
between the sale price and the repurchase price of the assets 
underlying the repo.
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    \3\ See Lorie K. Logan, Federal Reserve Bank of New York, 
``Operational Perspectives on Monetary Policy Implementation: Panel 
Remarks on `The Future of the Central Bank Balance Sheet' '' (2018), 
https://www.newyorkfed.org/newsevents/speeches/2018/log180504.
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    To protect the cash provider against a decline in the value of the 
securities subject to repurchase, cash providers typically require 
over-collateralization from borrowers. In an uncleared bilateral repo, 
the value of the securities pledged as collateral is discounted, which 
is referred to as a haircut. In a centrally cleared repo, 
overcollateralization is accomplished via initial margin. If the market 
value of the collateral falls during the life of the repo, the cash 
provider or, if cleared, the clearing firm, 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 terms, including the 
types of securities that are acceptable to the cash provider as 
collateral, and the associated haircuts or initial margin requirements. 
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 on a floating basis. There are also 
open tenor repos that do not have a fixed maturity and are instead 
renewed by mutual agreement.

a. Importance of Repurchase Agreement Markets and Associated 
Vulnerabilities

    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 United States. In 2008-09, runs on repos contributed to 
the financial crisis and helped lead to official sector 
intervention.\4\ The repo market is important to facilitating the flow 
of cash and securities through the financial system. There are four 
functions that repo transactions can serve for individual participants: 
Low-risk cash investment, monetization of assets, transformation of 
collateral, and facilitation of hedging.\5\ Repos also benefit 
financial markets broadly by supporting secondary market efficiency and 
liquidity.\6\ These functions are described in the following paragraphs 
to provide a framework for understanding activity in the repo market 
and the associated vulnerabilities, and the need for the information 
this proposed collection will provide. Understanding the benefits and 
vulnerabilities of the repo market as a whole is important both in 
demonstrating the need for this proposed collection and determining 
which data elements are appropriate for inclusion.
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    \4\ See Gary Gorton and Andrew Metrick, ``Securitized Banking 
and the Run on Repo,'' Journal of Financial Economics (June 2012), 
pp, p. 425-451.
    \5\ See Bank for International Settlements, study group report, 
Repo Market Functioning (April 2017), https://www.bis.org/publ/cgfs59.htm.
    \6\ See Bank for International Settlements (April 2017).
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i. Low-Risk Option for Cash Investment; Deposit Substitute
    One of the functions repos offer is an alternative to insured 
deposits that provides similar, though less, liquidity and security. 
Financial market participants desire low-risk, money-like claims in 
order to meet demand for access to cash. Money and money-like claims 
can take a number of forms, including deposits and money market mutual 
fund investments. Because deposit insurance is capped in the United 
States, institutions seek repos backed by high-quality assets to place 
excess cash over the deposit insurance limit. The securities provided 
in the trade protect the cash provider against counterparty credit 
risk, while use of overcollateralization provides protection against 
market risk.\7\ In general, higher-quality collateral and larger 
haircuts reduce the risk to the cash provider.
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    \7\ Repos are generally subject to an exemption from the 
automatic stay in bankruptcy, meaning that if a cash provider's 
counterparty were to default, the cash provider could liquidate the 
collateral, recovering its value. 11 U.S.C. 559. In 2017, the Board 
of Governors of the Federal Reserve System and Federal Deposit 
Insurance Corporation adopted a final rule requiring U.S. global 
systemically important banks (G-SIBs) and their subsidiaries to 
amend their repo contracts to temporarily stay the exercise of 
default rights caused by the bankruptcy of an affiliate. See 82 FR 
42882 (September 12, 2017).
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    Repo markets can become less effective in providing deposit 
substitutes in times of market stress.\8\ In certain circumstances, 
although repo claims are secured, they may still lose favor as 
collateral values drop or counterparty risk increases. This risk was 
realized for Bear Stearns in 2008, when a run on Bear Stearns' funding 
spread to its repo borrowing against high-quality collateral.\9\ This 
example demonstrates that even repos backed by high-quality collateral 
can become sensitive to counterparty risk, potentially resulting in a 
run on the institution's funding.
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    \8\ For example, greater demand for high-quality assets makes 
them more difficult to procure, which can lead to failures to return 
the repo collateral. This phenomenon can become self-perpetuating, 
as when failures rise, market participants become less likely to 
lend securities to avoid the possibility that they may not get them 
back. This further reduces the supply of securities, exacerbating 
the situation. As a result, an initial shock to asset markets that 
reduces the supply of acceptable alternatives to cash providers can 
be amplified through repo market dynamics, further reducing firms' 
options for deposit substitutes due to rising transaction fails.
    \9\ 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 Bank for International Settlements, 
Liqudity Stress Testing: A Survey of Theory, Empirics and Current 
Industry and Supervisory Practices (October 2013), https://www.bis.org/publ/bcbs_wp24.htm.
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ii. Monetizing Liquid Assets
    Just as repos offer cash providers a deposit substitute, they allow 
cash borrowers to obtain funding in a cost-efficient manner. The 
monetization of assets achieved via repos offers a source of liquidity 
to firms that hold securities in inventory. For this reason, repos play 
an important role in the government securities market, as dealers often 
use repos to fund their purchases of Treasury securities at auction.
    The ability to monetize assets enables firms to engage in maturity 
transformation, in which a firm funds long-term assets using short-term 
liabilities. For example, a firm can borrow cash in the repo market 
with overnight maturity, using the cash

[[Page 31898]]

received to fund its holdings of long-term assets, which it provides as 
collateral. While maturity transformation is an essential function of 
the financial system, the asset-liability maturity mismatch gives rise 
to rollover risk.
    As a result of the maturity mismatch that can arise from the 
monetization of liquid assets, this function, while a benefit of repos, 
is also a potential source of fragility. When the repo market is 
impaired, the ability of securities providers to borrow against their 
portfolios can be reduced.\10\ An example of this dynamic occurred in 
2007, when haircuts on repos backed by private-label mortgage-backed 
securities (``MBS'') began to rise as a result of doubts about the 
value of the underlying collateral. As haircuts rose, leveraged firms 
were forced to sell difficult-to-value assets, often to buyers that 
were even less able to value the assets. Those buyers required steeper 
discounts as a result, creating strong fire sale dynamics that further 
undermined the value of private-label MBS.\11\ These runs passed 
through from dealers to leveraged funds, increasing the likelihood that 
those funds would be forced to dispose of assets in a fire sale, 
further reinforcing the fire sale dynamics.\12\
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    \10\ This can occur when some securities become information-
sensitive. Because cash providers seek to avoid gathering costly 
information about the quality of individual securities, increases in 
uncertainty as to the value of securities cause them to increase 
asset class-level haircuts in an attempt to recover their 
information-insensitivity. This reduces the ability of securities 
providers to borrow in repo against their portfolios. See Gary 
Gorton and Guillermo Ordo[ntilde]ez, ``Collateral Crises,'' American 
Economic Review, Vol. 104, no. 2 (February 2014), https://www.aeaweb.org/articles?id=10.1257/aer.104.2.343.
    \11\ See Gary B. Gorton, ``Information, Liquidity, and the 
(Ongoing) Panic of 2007,'' NBER Working Paper no. 14649 (January 
2009), http://www.nber.org/papers/w14649.
    \12\ See Rajkamal Iyer and Marco Macchiavelli, ``Primary 
Dealers' Behavior During the 2007-08 Crisis: Part II, Intermediation 
and Deleveraging,'' FEDS Notes (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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iii. Transformation of Collateral
    Another function of repos is to exchange securities currently held 
for other securities. This type of transaction allows firms to exchange 
one asset for another asset, effecting a form of collateral 
transformation. For example, a firm may want to temporarily exchange 
lower-quality equity collateral for higher-quality Treasury securities 
that can be posted as margin. This goal can be accomplished through a 
pair of repo transactions in which the firm lends the equities in one 
repo transaction and uses the cash proceeds to borrow Treasury 
securities in a second repo transaction, effectively transforming the 
quality of its assets.\13\
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    \13\ This approach is of particular importance to firms that 
hold lower-quality assets and engage in trades in, for example, 
derivatives, where higher-quality assets are required for margining.
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    Because high-quality collateral can become scarce in times of 
stress, risks can increase for leveraged firms that rely on repos to 
obtain margin-eligible securities. Potential difficulties in obtaining 
high-quality collateral during large market movements that trigger 
margin increases illustrate how collateral transformation transactions 
can compound risks. For leveraged firms that engage in strategies in 
both cash and derivatives markets, the inability to obtain collateral 
to post margin could undermine their ability to maintain a hedged 
position, and could force a disorderly unwind. This use of repos can 
therefore create linkages that can enable the propagation of shocks 
through securities financing, derivatives, and securities markets.
iv. Facilitating Hedging
    Repos can be used as a lower-cost way to hedge specific risks than 
individually buying and selling assets. For example, by allowing 
underwriters to borrow and short an issuer's outstanding securities, 
repo markets let underwriters hedge the risk associated with holding 
newly issued securities that they have underwritten but not yet placed. 
This decreases the risk to underwriters and may reduce the cost to 
issuers. The reduced capacity of the repo market to facilitate hedging 
during periods of market stress can therefore make it more difficult 
for firms to manage exposures and engage in financial intermediation.
v. Supporting Secondary Market Efficiency and Liquidity
    This final function of repos refers to their potential benefits for 
financial markets as a whole. Repo markets support secondary market 
efficiency and liquidity in securities markets both by funding dealer 
inventories and by helping dealers to source securities. Both allow 
dealers to quote prices on a broader range of securities more readily, 
thereby increasing asset market liquidity. Additionally, the ability of 
market participants to use repos to obtain securities for short sales 
improves pricing efficiency.
    Repos allow dealers to quote prices more readily, improving market 
liquidity in two ways. First, because the repo market helps dealers to 
more effectively monetize assets on their balance sheet,\14\ dealers 
are able to maintain larger inventories at a lower cost, which may 
allow them to quote prices on (i.e., offer to sell) a larger volume or 
wider array of securities. Second, by enabling dealers to borrow 
securities on a short-term basis, repo markets allow dealers to quote 
prices for securities they do not currently hold in inventory but know 
they can access--a virtual inventory. Without repos, a dealer would 
have to maintain larger inventories at increased capital costs to make 
markets, adding to costs for the dealer and, by extension, issuers and 
investors. Thus, repo markets are critical to dealer trading and 
supporting market efficiency and liquidity.
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    \14\ See Section II.A.ii, Repurchase Agreement Background, 
Monetizing Liquid Assets.
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    The secondary market efficiency and liquidity provided by repos 
depend on a funding market with relatively stable collateral values. 
Repos create a tight coupling between funding liquidity and market 
liquidity. This can create a situation where a negative shock to the 
value of assets in dealers' portfolios reduces their ability to fund 
those portfolios. That reduces market liquidity, which can further 
reduce dealers' ability to fund their portfolios. Market liquidity 
provided by repos reinforces and is reinforced by the funding liquidity 
available to traders. Shocks to either market liquidity or funding 
liquidity can negatively affect both, potentially leading to liquidity 
spirals.\15\ In extreme scenarios, liquidity spirals can manifest as 
fire sales in which firms are forced to deleverage with no ready 
buyers. That may cause prices to plummet below assets' fundamental 
value, which, in turn, may force further deleveraging.
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    \15\ See Markus K. Brunnermeier and Lasse Heje Pedersen, 
``Market Liquidity and Funding Liquidity,'' The Review of Financial 
Studies, Vol. 22, no. 6 (June 2009), https://doi.org/10.1093/rfs/hhn098.
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b. Structure of the U.S. Repurchase Agreement Market

    In the United States, repos are often described as occurring in 
either the tri-party or bilateral market. However, a more precise way 
of describing the segments of the U.S. repo market is to distinguish 
between transactions that are settled on the books of tri-party 
custodian banks, and repos that are settled on a delivery-versus-
payment (``DVP'') basis. There are two market segments that rely on 
tri-party custodian banks for settlement. First, there is a non-
centrally cleared segment, traditionally referred to as ``tri-party 
repo.'' Second, there is a centrally cleared segment, consisting of the

[[Page 31899]]

General Collateral Financial Repurchase Agreement service (``GCF 
Repo''), that provides trade matching and netting services on general 
collateral repos. DVP transactions also occur in two segments: 
Centrally cleared DVP repos; and uncleared DVP repos, typically 
referred to as bilateral repos, which involve two parties contracting 
directly without a central counterparty.
    In tri-party repo, settlement occurs through a bank that provides 
collateral valuation, margining, and management services. The 
settlement bank provides back-office support to both parties in the 
trade by settling the repo on its books and confirming the terms of the 
repo, such as eligible collateral and haircuts, are met.\16\ Agreements 
in tri-party repo are between specified counterparties and are made on 
a general collateral basis. In general collateral transactions, cash 
providers accept classes of securities at set haircuts rather than 
specific securities.
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    \16\ Additionally, the settlement bank acts as custodian for the 
securities held as collateral and allocates collateral to trades at 
the close of the business day. This ensures that the party receiving 
securities receives the correct asset class, value, and haircut, 
while confirming that any newly posted collateral substituted during 
the life of the transaction meets the cash provider's collateral 
requirements.
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    In GCF Repo, qualified members of the Fixed Income Clearing 
Corporation (``FICC'') Government Securities Division can trade repos 
on a general collateral basis without revealing their identities to 
counterparties. FICC, a subsidiary of the Depository Trust & Clearing 
Corporation (``DTCC''), provides the GCF Repo service. GCF Repo-
eligible collateral consists of government and agency securities 
eligible for settlement via Fedwire, the Federal Reserve's payment and 
settlement system.\17\ FICC acts as a CCP for participating members. 
Interposing a common counterparty for all transactions allows broker-
dealers to limit counterparty risk and provides netting benefits. 
Transacting in GCF Repo is efficient because participants do not have 
to assign collateral for each specific trade; instead, collateral held 
at a tri-party clearing bank is allocated to net positions at the end 
of the day. The elimination of trade-by-trade DVP delivery requirements 
reduces participants' operational costs. The GCF Repo service recently 
was expanded to include Centrally Cleared Institutional Triparty 
(``CCIT''), a channel through which institutional counterparties (other 
than investment companies registered under the Investment Company Act 
of 1940, as amended \18\) can participate as cash providers in GCF Repo 
on a specified counterparty basis. This new service may lead to a 
tighter coupling between the GCF Repo and tri-party repo market 
segments, because it enables tri-party lenders that previously could 
not participate in the GCF repo market to lend directly to a cash 
borrower in the GCF repo market.
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    \17\ See Paul Agueci, Leyla Alkan, Adam Copeland, Isaac Davis, 
Antoine Martin, Kate Pingitore, Caroline Prugar, and Tyisha Rivas, 
``A Primer on the GCF Repo[supreg] Service,'' Federal Reserve Bank 
of New York Staff Reports no. 671 (2014), https://www.newyorkfed.org/research/staff_reports/sr671.html.
    \18\ 15 U.S.C. 80a-1 et seq.
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    Outside the tri-party custodian banks, FICC operates the DVP 
Service as an additional repo platform for qualified members of its 
Government Securities Division.\19\ Through this platform, bilateral 
repo transactions are novated to FICC, which then acts as a central 
counterparty to the transactions.\20\ This platform provides settlement 
netting for legs of repo transactions occurring after the initial date 
of the agreement. Participants execute bilateral repos with other FICC 
members and submit security-specific trades for matching, comparison, 
and settlement. While some of these trades are negotiated on a general 
collateral basis, their settlement occurs on a specific-security basis.
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    \19\ See David Bowman, Joshua Louria, Matthew McCormick, and 
Mary-Frances Styczynski, ``The Cleared Bilateral Repo Market and 
Proposed Repo Benchmark Rates,'' FEDS Notes (February 27, 2017), 
https://doi.org/10.17016/2380-7172.1940.
    \20\ Novation in this context refers to the process by which the 
clearinghouse becomes the counterparty to both of the participants 
to the transaction. Novation is the substitution or swap of two 
parties in a contractual agreement., according to Black's Law 
Dictionary (10th ed., 2014).
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    Finally, there are uncleared bilateral repos, in which 
counterparties negotiate repo transactions directly with one another. A 
firm engaging in uncleared bilateral repos must manage the collateral 
flow, processing, settlement, valuation, and margining itself.
    Analysis of data on primary dealer positions suggests that dealers 
act as cash providers in $3.0 trillion of bilateral repos, including 
those conducted through the DVP Service.\21\
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    \21\ See Viktoria Baklanova, Cecilia Caglio, Marco Cipriani, and 
Adam Copeland, ``The U.S. Bilateral Repo Market: Lessons from a New 
Survey,'' OFR Brief Series no. 16-01 (January 13, 2016), https://www.financialresearch.gov/briefs/files/OFRbr-2016-01_US-Bilateral-Repo-Market-Lessons-from-Survey.pdf.
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c. Data Available on U.S. Repurchase Agreement Activity

    While some members of the Council have access to certain data about 
the repo market, the data are insufficient to draw a complete picture 
of U.S. repo market activity and the associated vulnerabilities. As the 
financial crisis demonstrated, high-quality information is one of the 
best tools for identifying the build-up of risk. While improvements 
have been made, a full picture of all segments of the U.S. repo market 
is still largely unavailable. This proposed collection will cover 
certain centrally cleared repo transactions, allowing the Office to 
gather data on a mandatory basis on what it estimates to be 
approximately one-quarter of the U.S. repo market.\22\ While this 
proposed collection will not yet provide a full picture of the entire 
U.S. repo market, when taken together with information collected about 
other types of repos by other regulators, discussed below, this 
proposed collection will enable access to transactional data on 
approximately half of U.S. repo market activity.
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    \22\ As measured by U.S. dollar volume.
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i. Tri-Party Repurchase Agreements
    The Board of Governors of the Federal Reserve System (``Federal 
Reserve Board''), through the Federal Reserve Bank of New York 
(``FRBNY''), supervises the two tri-party custodian banks and, on a 
mandatory basis pursuant to its supervisory authority, collects daily 
data on transactions in these markets.\23\ 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; and, if the transaction includes an option (e.g., 
the ability to extend or terminate early), the minimum notice period 
required to exercise it.\24\ Additionally, the FRBNY makes some 
aggregated data on tri-party repo publicly available. As of April 2018, 
daily tri-party repo volumes totaled about $1.8 trillion.\25\
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    \23\ Bank of New York Mellon (``BNYM'') and JPMorgan Chase 
(``JPMC'') currently serve as the two clearing banks in the tri-
party repo market. JPMC announced in July 2016 that it plans to exit 
government securities settlement for broker-dealers by the end of 
2018. After 2018, BNYM may become the sole clearing bank in the tri-
party repo market for Treasury securities. See Federal Reserve 
Board, Request for Information Relating to Production of Rates, 82 
FR 41259, 41260 (August 30, 2017).
    \24\ See 82 FR 41259, 41260 (August 30, 2017).
    \25\ See Federal Reserve Bank of New York, ``Tri-Party-GCF 
Repo,'' undated online content, https://www.newyorkfed.org/data-and-statistics/data-visualization/tri-party-repo#interactive/volume/collateral_value.
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ii. Centrally Cleared General Collateral Repurchase Agreements
    A centrally cleared general collateral repo is a transaction that 
is cleared by

[[Page 31900]]

a CCP where the settlement obligation is for an acceptable asset class 
as opposed to a specific security. Currently, only FICC offers this 
type of centrally cleared U.S. service, through its GCF Repo service. 
While the FRBNY has entered into a voluntary agreement with an 
affiliate of FICC, DTCC Solutions LLC (``DTCC Solutions''), to obtain 
limited daily data regarding GCF Repo transactions,\26\ there is no 
mandatory collection of detailed transaction data from GCF Repo. The 
data set provided under the voluntary agreement includes: The interest 
rate of the transaction; information on the collateral that may be 
pledged in the transaction; the date the transaction is initiated; the 
date the transaction becomes effective; the date the transaction 
matures; the value of funds borrowed in the transaction; and an 
indicator differentiating between repos and reverse repos in relation 
to the CCP.\27\ Notably, the data submission to the FRBNY does not 
include the identities of counterparties, although the FICC platform 
collects this information as a consequence of its trade processing. As 
of September 2017, daily GCF Repo volumes totaled about $400 billion on 
a gross basis.\28\
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    \26\ See 82 FR 41259, 41260 (August 30, 2017).
    \27\ Id.
    \28\ See Federal Reserve Bank of New York, ``Tri-Party-GCF 
Repo,'' undated online content, https://www.newyorkfed.org/data-and-statistics/data-visualization/tri-party-repo#interactive/tripartygcf.
---------------------------------------------------------------------------

iii. Centrally Cleared Specific-Security Repurchase Agreements
    A centrally cleared specific-security repo is a transaction that is 
cleared by a CCP where the settlement obligation is for a mutually 
agreed upon specific security, such as a security identified by a 
particular CUSIP or ISIN.\29\ In the United States, currently only FICC 
offers this type of centrally cleared repo service through its DVP 
Service, through which bilateral repo transactions become centrally 
cleared. As is the case with existing centrally cleared general 
collateral repo, there is no mandatory regulatory collection of data on 
centrally cleared specific-security repo. Like GCF Repo, DTCC Solutions 
also provides limited daily data on transactions under FICC's DVP 
Service to the FRBNY under a voluntary agreement. The data include 
information only on repos backed by U.S. Treasury securities. For each 
trade, information is provided on the interest rate of the transaction; 
the specific collateral that is pledged in the transaction; the date 
the transaction is initiated; the value of funds borrowed in the 
transaction; and a field indicating whether the CCP is lending cash or 
securities.\30\ As with the GCF Repo service, FICC's DVP Service data 
submission does not include counterparty information. FICC's DVP 
Service is estimated to clear about $400 billion in same-day-start 
overnight repos collateralized by Treasury securities alone.\31\
---------------------------------------------------------------------------

    \29\ CUSIP is a nine-character alphanumeric code that identifies 
a North American financial security for the purposes of facilitating 
clearing and settlement of trades. The CUSIP system is owned by the 
American Bankers Association and is operated by S&P Global Market 
Intelligence. The International Securities Identification Number 
(ISIN) is a 12-character alphanumeric code that serves for uniform 
identification of a security through normalization of the assigned 
National Number. CUSIP serves as the National Securities 
Identification Number for products issued in the United States and 
Canada.
    \30\ See 82 FR 41259, 41261 (August 30, 2017).
    \31\ See Bowman, Louria, McCormick, and Styczynski (February 27, 
2017).
---------------------------------------------------------------------------

iv. Uncleared Bilateral Repurchase Agreements
    Unlike the other three repo market segments, the wholly bilateral 
nature of uncleared repo means there is no central source for 
comprehensive data. 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 and the Federal 
Reserve, with input from the Securities and Exchange Commission 
(``SEC''), conducted a pilot program collecting information on both 
centrally cleared and uncleared bilateral repo transactions. The pilot 
collection took place in 2015 and gathered data from a subset of U.S.-
based broker dealers. The results and lessons learned were published in 
January 2016.\32\ While the pilot did not survey all market 
participants, the paper summarizing the results of the pilot used data 
from the Federal Reserve's FR 2004 report, which collects information 
on market activity from primary dealers in U.S. government securities, 
to estimate that dealers provide on a daily basis about $3.0 trillion 
in cash in cleared and uncleared bilateral repo combined.\33\ 
Significant lessons were learned about the uncleared bilateral repo 
market from the pilot. The Office is considering a separate rulemaking 
in the future to collect data on an ongoing basis about the uncleared 
bilateral segment of the U.S. repo market.
---------------------------------------------------------------------------

    \32\ See Office, Bilateral Repo Data Collection Pilot Project, 
undated online content, https://www.financialresearch.gov/data/repo-data-project/. Nine bank holding companies voluntarily provided data 
on their outstanding bilateral repo and equivalent securities 
lending trades for three days.
    \33\ See Baklanova, Caglio, Cipriani, and Copeland (January 13, 
2016).
---------------------------------------------------------------------------

III. Alternative Reference Rate Background

    LIBOR is a set of widely-used reference rates for different 
currencies and maturities that is intended to represent the cost of 
unsecured borrowing in the interbank market. The sustainability of U.S. 
dollar LIBOR is uncertain. In the wake of scandals arising from 
misconduct related to LIBOR submissions, banks have become increasingly 
reluctant to participate in the U.S. dollar LIBOR panel, and market 
participants generally have trended away from unsecured funding and 
toward secured funding transactions.\34\ Only about one-quarter of 
current benchmark 3-month U.S. dollar LIBOR submissions are based on 
actual transactions because of the low volume of unsecured funding 
transactions.\35\ With fewer transactions, panel members are less able 
to rely on arm's-length transactions as the basis for their 
submissions, which subjects participating firms to possible criticism 
or litigation risk. For these reasons, some U.S. dollar LIBOR 
participants have questioned their continued involvement. Recognizing 
the need to continue LIBOR publication while alternatives are 
identified and operationalized, the U.K. Financial Conduct Authority 
(``FCA'') released a consultation paper discussing its ability to 
compel banks to continue providing submissions to the LIBOR panel.\36\ 
The paper concluded that the FCA's powers are time-limited and cannot 
guarantee the ongoing viability of LIBOR. Subsequently, the FCA secured 
a voluntary agreement with the LIBOR panel banks for their continued 
participation in LIBOR panels through 2021.\37\
---------------------------------------------------------------------------

    \34\ See Office's 2017 Financial Stability Report, pp. 27-28.
    \35\ See ICE Benchmark Administration's ICE LIBOR Quarterly 
Volume Report, Q1 2018, https://www.theice.com/publicdocs/ICE_Libor_Quarterly_Volume_Report_Q1_2018.pdf.
    \36\ See Financial Conduct Authority, ``Powers in Relation to 
LIBOR Contributions'' (June 2017), pp. 15-16, https://www.fca.org.uk/publication/consultation/cp17-15.pdf.
    \37\ See Financial Conduct Authority, ``FCA Statement on LIBOR 
Panels'' (November 24, 2017), https://www.fca.org.uk/news/statements/fca-statement-libor-panels.
---------------------------------------------------------------------------

    For several years, the Council has recommended the identification 
of alternative reference rates.\38\ Most recently, in its 2017 annual 
report, the Council encouraged the completion of work to develop a 
credible

[[Page 31901]]

implementation plan to achieve a smooth transition to the new rate.\39\
---------------------------------------------------------------------------

    \38\ See Financial Stability Oversight Council, recommendations 
in 2014, 2015, 2016, and 2017 annual reports, https://www.treasury.gov/initiatives/fsoc/studies-reports/Pages/2017-Annual-Report.aspx.
    \39\ See Financial Stability Oversight Council, 2017 Annual 
Report, p. 13, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC_2017_Annual_Report.pdf.
---------------------------------------------------------------------------

    Following a report by the Financial Stability Board, the U.S. 
effort to identify alternative interest rate benchmarks to U.S. dollar 
LIBOR was coordinated by the Federal Reserve and supported by the 
Council.\40\ The Federal Reserve convened the ARRC in November 2014, 
with representation from many of the largest dealers.\41\ This body, a 
voluntary, industry-led effort, worked to identify a preferred 
alternative reference rate and lay out a roadmap for a transition to 
that rate.
---------------------------------------------------------------------------

    \40\ See Financial Stability Board report, Reforming Major 
Interest Rate Benchmarks (July 22, 2014), http://www.fsb.org/2014/07/r_140722/. See Financial Stability Oversight Council, 2014, 2015, 
2016, and 2017 annual reports, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf.
    \41\ See Alternative Reference Rates Committee, minutes for 
December 2014 meeting, and list of initial ARRC representatives 
(December 12, 2014), https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2015/Dec-12-2014-ARRC-Minutes.pdf. The 
committee's current membership is available at https://www.newyorkfed.org/arrc/governance.html.
---------------------------------------------------------------------------

    In December 2017, the Federal Reserve Board announced that the 
FRBNY, in cooperation with the Office, would begin producing three new 
reference rates based on repo transaction data during the second 
quarter of 2018.\42\ These three rates are the tri-party general 
collateral rate, the BGCR, and the SOFR. Publication of these rates 
began on April 3, 2018.\43\ The BGCR consists of overnight repos backed 
by Treasury securities that occur in tri-party repo and the GCF Repo 
service. The SOFR consists of overnight repos backed by Treasury 
securities that occur in the tri-party repo market, the GCF Repo 
service, and the DVP Service.\44\ The ARRC selected the SOFR as its 
preferred alternative to U.S. dollar LIBOR.\45\ The FRBNY is currently 
producing the SOFR and BGCR using the tri-party repo data it collects 
from BNYM through the Federal Reserve Board's supervisory authority and 
the data it obtains through the voluntary agreement with DTCC 
Solutions, discussed above. This proposed collection is expected to 
provide an ongoing and expanded source of data to support rates such as 
the SOFR and BGCR, helping to fulfill the Council's recommendation for 
the identification of alternative reference rates.
---------------------------------------------------------------------------

    \42\ See Federal Reserve Board, Production of Rates Based on 
Data for Repurchase Agreements, 82 FR 58397 (December 12, 2017).
    \43\ See Federal Reserve Bank of New York, Statement Introducing 
the Treasury Repo Reference Rates (April 3, 2018), https://www.newyorkfed.org/markets/opolicy/operating_policy_180403.
    \44\ Production of this new rate, in addition to addressing a 
financial stability issue, may improve market liquidity, as 
benchmark regulation has been found to do. See Matteo Aquilina, 
Gbenga Ibikunle, Vito Mollica, and Tom Steffen, ``Benchmark 
Regulation and Market Quality,'' U.K. Financial Conduct Authority 
Occasional Paper no. 27 (July 3, 2017), https://www.fca.org.uk/publication/occasional-papers/op17-27.pdf.
    \45\ See Alternative Reference Rates Committee, The ARRC Selects 
a Broad Repo Rate as its Preferred Alternative Reference Rate, (June 
22, 2017), http://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf.
---------------------------------------------------------------------------

IV. Justification for Proposed Collection

a. Collection of Centrally Cleared Repurchase Agreement Data

i. Importance of Centrally Cleared Repurchase Agreement Data for 
Monitoring Financial Stability Risks
    The collection of data on the centrally cleared segments of the 
repo market marks an important step in carrying out the Council's 
recommendation to expand and make permanent the collection of data on 
the U.S. repo market. The Council recommended a permanent collection of 
repo data in its 2016 annual report to improve transparency and risk 
monitoring which was reiterated in the 2017 annual report.\46\ The 
Office believes that the proposed approach of collecting certain 
cleared repo data from CCPs, which already collect most or all of the 
requested data during trade processing, will result in lower aggregate 
costs to market participants than a collection from individual 
participants. FICC has indicated that on average, it matches, nets, 
settles, and risk-manages centrally cleared repo transactions valued at 
more than $1.7 trillion per day.\47\ This proposed collection is 
expected to result initially in reporting only from two FICC services: 
The GCF Repo Service (a general collateral repo service), including 
CCIT; and the DVP Service (a specific-security repo service). This 
proposed collection, together with existing data collected on tri-party 
repos, will allow about half of the estimated activity in the U.S. repo 
market by volume to be analyzed and monitored.\48\
---------------------------------------------------------------------------

    \46\ See Financial Stability Oversight Council, 2017 Annual 
Report, p. 14, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC_2017_Annual_Report.pdf and 2016 Annual 
Report, p. 14, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf.
    \47\ See Depository Trust & Clearing Corporation, DVP Repo 
Transactions, undated online content, https://www.dtcclearning.com/products-and-services/fixed-income-clearing/government-securities-division-gsd/dvp-service/dvp-repo-transactions.html.
    \48\ See Baklanova, Caglio, Cipriani, and Copeland (January 13, 
2016), using a method first outlined in Copeland, et al., ``Lifting 
the Veil on the U.S. Bilateral Repo Market.'' Liberty Street 
Economics: http://libertystreeteconomics.newyorkfed.org/2014/07/lifting-the-veil-on-the-us-bilateral-repo-market.html.
---------------------------------------------------------------------------

    The collection of transactional data on centrally cleared repos is 
key to the Council's effective identification and monitoring of 
emerging threats to the stability of the U.S. financial system. The 
repo market plays a number of critical functions which have associated 
vulnerabilities that could give rise to conditions that impair the 
ability of repo markets to perform. These functions also create 
linkages between different financial markets and institutions, and 
therefore potential channels for the propagation of shocks. These 
vulnerabilities have developed in the past into threats to U.S. 
financial stability, most notably during the 2007-09 financial 
crisis.\49\
---------------------------------------------------------------------------

    \49\ During the financial crisis, the repo market first began to 
show stress in the summer of 2007, and runs on repos played a 
central role in the failures of Bear Stearns and Lehman Brothers. 
These threats can manifest quickly; the run on Bear Stearns took 
place over less than a week. See Financial Crisis Inquiry 
Commission, ``Conclusions of the Financial Crisis Inquiry 
Commission,'' (January 2011) pp. 286-290.
---------------------------------------------------------------------------

    Despite the vulnerabilities, only one of the four segments of the 
U.S. repo market, the tri-party repo segment, is currently subject to a 
mandatory regulatory data collection. Data gaps and the absence of 
mandatory collections are a significant impediment to the Council's and 
its member agencies' ongoing ability to monitor developments in the 
repo market and potential emerging threats to financial stability. The 
lack of comprehensive data on repos creates material blind spots with 
regard to the most active short-term funding market in the U.S. 
financial system. This proposed collection is an important step in 
eliminating these blind spots.
    From a financial stability perspective, it is important to monitor 
transactions in centrally cleared repo for three reasons. First, repos 
that are transacted through a CCP on a blind-brokered basis can act as 
a critical market for repo borrowers that are under stress. Even 
uncleared repos backed by high-quality collateral can become sensitive 
to counterparty risk, potentially resulting in a run on the 
institution's funding.\50\ Shifts in activity from specific-
counterparty repos to blind-brokered

[[Page 31902]]

transactions can therefore indicate market perceptions that a firm may 
be under stress.
---------------------------------------------------------------------------

    \50\ See Adam Copeland, Antoine Martin, and Martin Walker, 
``Repo Runs: Evidence from the Tri-Party Repo Market'' (2011), 
Federal Reserve Bank of New York Staff Reports.
---------------------------------------------------------------------------

    Second, while counterparty risk is mitigated by the use of CCPs, 
adverse changes in the value of collateral can propagate shocks arising 
elsewhere in the financial system to CCP members by impacting their 
ability to borrow in centrally cleared repo.\51\ Further, collateral 
held at tri-party custodian banks that is used in centrally cleared 
repos within the tri-party system is not available for delivery outside 
of the tri-party system, making information on the collateral used in 
this venue important for understanding broader market dynamics.
---------------------------------------------------------------------------

    \51\ The linkages between funding and asset markets creates risk 
of spillovers from one market to another because of the shared use 
of collateral. Price impacts on collateral arising from the forced 
sale of collateral due to the lack of confidence in the collateral 
or a particular counterparty can have widespread effects beyond the 
original transactions, leading to contagion that can culminate in 
fire sales and potential threats to financial stability. The shared 
use of collateral between different segments of the repo market 
therefore creates a channel through which centrally cleared repo 
transactions can be impacted by activity in other portions of the 
repo market.
---------------------------------------------------------------------------

    Third, while CCPs offer benefits in terms of settlement and risk 
management, they may also propagate shocks to their members. If a repo 
CCP were to fail, the repo intermediation capacity of the financial 
system would be limited during a period of market stress. Even if this 
risk were judged to be remote, in a circumstance where, as here, there 
may be only one CCP, disruption of such a critical service could have 
severe implications. For these reasons, and as noted by the Council in 
its 2017 annual report, further analysis of risks related to CCPs is 
appropriate.\52\
---------------------------------------------------------------------------

    \52\ See Financial Stability Oversight Council, 2017 Annual 
Report, pp. 123-4, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC_2017_Annual_Report.pdf.
---------------------------------------------------------------------------

    Questions:
    1. Is a data collection on centrally cleared repo transactions as 
proposed appropriate? Does a centrally cleared repo collection support 
the Council's recommendations?
    2. To what extent may collecting counterparty information improve 
financial stability monitoring?
ii. Importance of Centrally Cleared Repurchase Agreement Data to 
Alternative Reference Rates
    This proposed collection is expected to support the calculation of 
the SOFR, the ARRC's preferred alternative reference rate. The SOFR 
relies on Treasury repo data from three of the four segments of the 
U.S. repo market. The Federal Reserve collects data for the tri-party 
portion through its supervisory authority over the clearing banks. 
While data on some GCF Repo and DVP Service transactions are available 
to the FRBNY through a voluntary agreement with DTCC Solutions, a 
permanent collection of these data will increase confidence that the 
alternative reference rate's inputs will continue to be available. This 
viability is important because the long-term success of any alternative 
reference rate relies on the confidence market participants place in 
it.
    Another benefit of this proposed collection is the ability to 
require specific data fields from centrally cleared general collateral 
repo and centrally cleared specific-security repo services for use in 
reference rate calculation.\53\ The Office has reviewed these data 
fields with the FRBNY and believes the information would help to 
improve and ensure the ongoing quality of the SOFR and BCGR. From an 
early stage, the Office has contributed to the development of 
alternative reference rates and has designed this proposed collection 
to maximize its compatibility with alternative reference rates. Some of 
the data fields in this proposed collection that are not currently 
received under the voluntary agreement between the FRBNY and DTCC 
Solutions would help ensure the continued quality of the rates. Most 
notably, the identity of transaction counterparties is important for 
rate calculation as it allows the calculation agent to identify and, as 
appropriate, exclude, transactions (e.g., affiliate transactions) that 
may not be representative of market activity. Further, by making 
available data on trades that are outside the current scope of the 
voluntary data collection that supports the rates, this proposed 
collection would allow the Federal Reserve and the Office to better 
monitor the evolution of markets and ensure that the rates continue to 
target their intended underlying interests.
---------------------------------------------------------------------------

    \53\ See infra Section V(b), information required, for a 
discussion of individual data fields.
---------------------------------------------------------------------------

    Finally, this proposed collection would help ensure the long-term 
viability of the SOFR and BGCR by including within its scope reporting 
from certain central counterparties that meet the $50 billion activity-
based materiality threshold. This assures rate production will be able 
to include new comparable transactions in the calculation of the rate 
as U.S. repo markets evolve in the future. This is of particular 
importance given that trading in products tied to the new rate might 
eventually subsume most volume that is currently tied to U.S. dollar 
LIBOR. This proposed collection will help ensure a continued source of 
standardized data on centrally cleared repos regardless of potential 
changes in market structure.
    Questions:
    3. Would establishing a regulatory reporting requirement to collect 
data on centrally cleared repos help ensure the continued availability 
and quality of the ARRC's selected alternative reference rate?

b. Uses of the Data Collection

    This proposed collection will be used by the Office to improve the 
Council's and member agencies' monitoring of the U.S. repo market and 
identifying and assessing potential financial stability risks. The 
additional daily transaction data this proposed collection will provide 
will facilitate identification of potential repo market vulnerabilities 
and will 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. Further, analyzing the collateral data from this collection 
together with other data available to the Office, the Council, and 
member agencies will enable a clearer understanding of collateral flows 
in securities markets and potential financial stability risks.
    The Office expects, consistent with the Dodd-Frank Act, to share 
data and information with the Council and member agencies, and such 
data and information must be maintained with at least the same level of 
security as used by the Office and may not be shared with any 
individual or entity without the permission of the Council.\54\ 
Consistent with this authority, the Office expects to make available 
the data from this proposed collection to the Federal Reserve Board and 
the FRBNY for purposes of meeting the above alternative reference rate 
and monitoring objectives as well as other market analysis and 
research. The Office will also make data collected and maintained under 
this proposed collection available to the Council and member agencies, 
as necessary to support their regulatory responsibilities.\55\ The 
sharing of any data from this proposed collection will be subject to 
the confidentiality and

[[Page 31903]]

security requirements of applicable laws, including the Dodd-Frank 
Act.\56\ 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.\57\
---------------------------------------------------------------------------

    \54\ 12 U.S.C. 5343(b).
    \55\ 12 U.S.C. 5344(b)(5).
    \56\ E.g., 12 U.S.C. 5343(b), 5344(b)(3).
    \57\ 12 U.S.C. 5343(b), 5322(d)(5).
---------------------------------------------------------------------------

    Aggregate or summary data from this proposed collection might be 
provided to the 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. The potential sharing 
of aggregate or summary data collected under this proposed collection 
would help fulfill a recommendation of the Council to make 
appropriately aggregated securities financing data available to the 
public.\58\
---------------------------------------------------------------------------

    \58\ See Financial Stability Oversight Council, Council's 2017 
Annual Report, p. 16, https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf.
---------------------------------------------------------------------------

    The Office may also use the data to sponsor and conduct additional 
research.\59\ 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.\60\ For example, access to data on centrally cleared repos will 
allow the Office to conduct research related to the Council's analysis 
of potential risks arising from securities financing activities.
---------------------------------------------------------------------------

    \59\ 12 U.S.C. 5343(b)(2).
    \60\ 12 U.S.C. 5344(b) discusses the Office's Data Center, and 
12 U.S.C. 5344(c) discusses the various uses of data by the Office's 
Research and Analysis Center to support the Council.
---------------------------------------------------------------------------

c. Legal Authority

    The ability of the Office to collect centrally cleared 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.\61\ The 
Office consulted with the Council on the proposed permanent collection 
of repo data at the Council's September 22, 2016, meeting.\62\ The 
Office also provided a public update to the Council on November 16, 
2017.\63\
---------------------------------------------------------------------------

    \61\ 12 U.S.C. 5344(b)(1)(B)(iii).
    \62\ See Financial Stability Oversight Council, meeting minutes 
(September 22, 2016), https://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/September222016_minutes.pdf.
    \63\ See Financial Stability Oversight Council, meeting minutes 
(November 16, 2017), https://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/November162017_minutes.pdf, and Office, 
OFR Update on Bilateral Repo Collection (November 22, 2017), https://www.financialresearch.gov/from-the-management-team/2017/11/22/ofr-update-on-bilateral-repo-collection/.
---------------------------------------------------------------------------

    The Office also has authority to promulgate regulations pursuant to 
the Office's general rulemaking authority under Dodd-Frank Act section 
153, which authorizes the Office to issue rules, regulations, and 
orders to the extent necessary to carry out certain purposes and duties 
of the Office.\64\ 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.\65\ 
The Office must consult with the Chairperson of the Council prior to 
the promulgation of any rules under section 153 \66\--this consultation 
occurred prior to the publication of this proposed collection.
---------------------------------------------------------------------------

    \64\ 12 U.S.C. 5343(a), (c)(1).
    \65\ 12 U.S.C. 5343(a). The Council's purposes and duties 
include identifying risks to U.S. financial stability; responding to 
emerging threats to the stability of the U.S. financial system; 
monitoring the financial services marketplace in order to identify 
potential threats to U.S. financial stability; making 
recommendations in such areas 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).
    \66\ 12 U.S.C. 5343(c)(1).
---------------------------------------------------------------------------

    This proposed collection will support the Council and member 
agencies by addressing the Council's recommendation to expand and make 
permanent the collection of data on the U.S. repo market; helping the 
Council and member agencies identify, monitor, and respond to risks to 
financial stability; identifying gaps in regulation that could pose 
risks to U.S. financial stability; and assisting in the production of 
alternative reference rates.\67\ The Office understands that the full 
scope of transaction information on the centrally cleared repo market 
required to fulfill the purposes of this proposed collection is not 
currently available to the Council or member agencies, including the 
primary financial regulatory agency for clearing agencies. The Council 
has recognized in its annual reports that weaknesses in LIBOR raised 
financial stability concerns and recommended the identification of 
alternative reference rates such as the secured, transactions-based 
rates this proposed collection will bolster. Thus, by supporting the 
production of alternative reference rates, this proposed collection 
will support the Council in fulfilling its duties and purposes.
---------------------------------------------------------------------------

    \67\ See supra, discussion in Section IV(a) about the importance 
of collecting repo data.
---------------------------------------------------------------------------

    The Office's statutory authority allows for the collection of 
transaction or position data from financial companies.\68\ ``Financial 
company,'' for purposes of Office authority, has the same meaning as in 
Title II of the Dodd-Frank Act.\69\ For this proposed collection, the 
Office expects that CCPs for repos, as defined in this proposed 
collection, will typically be ``financial companies'' as defined in 
Title II because they are 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 \70\ (or they are a subsidiary thereof).\71\ For a 
company to be ``predominantly engaged'' in activities that are 
financial in nature or incidental thereto, either (1) at least 85 
percent of the total consolidated revenues of the company 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 percent or more of 
the total consolidated revenues of the company.\72\
---------------------------------------------------------------------------

    \68\ 12 U.S.C. 5344(b)(1)(B)(iii).
    \69\ 12 U.S.C. 5341(2).
    \70\ 12 U.S.C. 1843(k).
    \71\ 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).
    \72\ 12 CFR 380.8(a).
---------------------------------------------------------------------------

    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,

[[Page 31904]]

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.\73\ 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 repo clearing 
including transferring money or securities; providing any device or 
other instrumentality for transferring money or other financial assets; 
providing financial data processing, storage and transmission services; 
arranging, effecting, or facilitating financial transactions for the 
account of third parties; and providing to customers as agent 
transactional services with respect to government obligations.\74\ 
Given the necessary experience, expertise and market credibility, 
entities that clear repos will typically be predominantly engaged in 
these or related financial activities, and therefore will be financial 
companies and potentially covered reporters under this proposal. The 
one expected covered reporter appears to be predominately engaged in 
these financial activities, making it a financial company.\75\
---------------------------------------------------------------------------

    \73\ For the final version of each rule, see Federal Reserve 
System, Definitions of ``Predominantly Engaged In Financial 
Activities'' and ``Significant'' Nonbank Financial Company and Bank 
Holding Company, Final Rule, 78 FR 20756 (March 29, 2013); and 
Federal Deposit Insurance Corporation, Definition of ``Predominantly 
Engaged in Activities That Are Financial in Nature or Incidental 
Thereto,'' Final Rule, 78 FR 34712 (June 4, 2013).
    \74\ 12 CFR 380.8(b).
    \75\ The Office has reviewed the disclosures of the expected 
covered reporter and its parent under this proposed collection and 
believes it is predominantly engaged in financial activities and is 
therefore a financial company.
---------------------------------------------------------------------------

V. Collection Design

    This proposed collection will be the first recurring and mandatory 
data collection from the Office. The proposed regulatory text includes 
two sub-parts: the first sets out general requirements for data 
collection necessary for this proposal and any future Office proposed 
collections, and the second lists the requirements specifically 
relevant to this proposed collection. The first regulatory text sub-
part cites the statutory authority of the Office to require the 
submission of information. The second regulatory text sub-part is 
designed to describe individual collections by the Office. This 
proposed collection will be the first section under this sub-part. The 
section includes three tables that describe the data elements that 
covered reporters will 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 will require the submission of transaction 
information by any CCP whose average daily total open commitments in 
repo contracts across all services over all business days during the 
prior calendar quarter is at least $50 billion. ``Open commitments'' 
refers to the CCP's gross cash positions, prior to netting. For 
example, a CCP might clear two trades beginning on the same day with an 
overnight maturity; in the first trade, Firm A lends $100 million to 
Firm B in exchange for $100 million of securities, and in the second 
trade, Firm C lends Firm A $100 million in exchange for $100 million of 
securities. The total open commitments for the CCP for these two trades 
is $200 million. A CCP is defined in this proposed collection as ``a 
clearing agency that interposes itself between the counterparties to 
transactions, acting functionally as the buyer to every seller and the 
seller to every buyer.'' \76\ The Office proposes defining ``clearing 
agency'' the same way as in the Securities Exchange Act of 1934, as 
amended, which defines a clearing agency as ``any person who acts as an 
intermediary in making payments or deliveries or both in connection 
with transactions in securities or who provides facilities for 
comparison of data respecting the terms of settlement of securities 
transactions, to reduce the number of settlements of securities 
transactions, or for the allocation of securities settlement 
responsibilities.'' \77\ Only CCPs that are clearing agencies and that 
perform the central clearing function for repo transactions at or above 
the volume threshold are required to report as covered reporters under 
this proposed collection. The regulatory text also defines ``repurchase 
agreement.'' \78\ Requiring submission of transaction-level repo data 
from CCPs allows for a more efficient collection than a data submission 
from each clearing member.
---------------------------------------------------------------------------

    \76\ This definition of ``central counterparty'' is consistent 
with the definitions used by the Committee on Payment and Market 
Infrastructures and the International Organization of Securities 
Commissions (``CPMI-IOSCO''), see Principles for Financial Market 
Infrastructures (April 2012), p. 9, https://www.bis.org/cpmi/publ/d101a.pdf, and the Financial Stability Board, see Guidance on 
Central Counterparty Resolution and Resolution Planning, p. 22, 
http://www.fsb.org/wp-content/uploads/P050717-1.pdf.
    \77\ 15 U.S.C. 78c(a)(23).
    \78\ See Regulatory Text Sec.  1610.10(a).
---------------------------------------------------------------------------

    As noted above, this proposed collection establishes a $50 billion 
volume threshold for determining whether a CCP is a covered reporter 
and is therefore required to report. The Office believes the proposed 
$50 billion activity-based threshold indicates sufficient volume for 
the CCP to be considered a material CCP in the repo market. One of the 
benefits of a CCP is the netting it provides to clearing members, which 
increases with the size of the CCP's services. As a result, CCPs in a 
given market tend to be few in number and large.
    While the Office understands that there is only one reporter 
currently covered by this proposed collection's scope, any other CCP 
would be required to start submitting data under this rule beginning on 
the first business day of the third calendar quarter after the calendar 
quarter in which the CCP meets the $50 billion activity-based 
materiality threshold. For example, if a CCP were to surpass the 
threshold beginning with the quarter ending on March 31 of a given 
year, that CCP 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 $50 billion 
threshold for at least four consecutive calendar quarters will have its 
reporting obligations cease. For example, if a covered reporter ceases 
to meet the $50 billion threshold beginning with the quarter ending 
June 30 of a given year, and remains below the $50 billion threshold in 
each of the following three quarters (in this example, through the 
quarter ending March 31 of the following year), its reporting 
obligations would cease as of April 1.
    This proposed collection will require CCPs that meet the 
aforementioned repo volume thresholds to report all repos they clear. 
Given the existing differences between how general collateral and 
specific-security trades are reported to repo clearing services, this 
proposed collection separates the reporting information required into 
distinct schedules for each type of centrally cleared repo service.
    Questions:
    4. The covered reporter definition seeks to include in the rule's 
scope only current or future material repo CCPs. The definition also 
seeks to exclude tri-party custodian banks already required to report 
on another portion of the repo

[[Page 31905]]

market from reporting under this proposal. Does the proposed covered 
reporter definition meet this objective and if not, what might the 
Office consider as an alternative?
    5. Is the $50 billion activity-based volume threshold for 
identifying covered reporters clear and appropriate for ensuring the 
inclusion of only current or future material repo CCPs?
    6. Is collecting centrally cleared repo transactions from CCPs more 
efficient than collecting these transactions from individual 
counterparties? How could the collection be made more efficient?
    7. Are the definitions of general collateral trade and specific-
security trade in the proposed regulatory text sufficiently clear to 
allow reporters to determine on which schedules they should be 
reporting?

b. Information Required

    This proposed collection has three schedules: the first covers 
details on general collateral trades, the second covers details on the 
securities used to collateralize net positions in general collateral 
repo, and the third covers specific-security trades. Each schedule is 
tailored to capture specific information regarding covered transactions 
in a manner that the Office believes reflects the data exchanged with 
CCPs in the ordinary course of business. The required data elements in 
these schedules are listed in Tables 1, 2, and 3 of Section Sec.  
1610(c) of the proposed regulatory text. Each 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 collection and 
further detail on certain key data fields.
i. Legal Entity Identifier Usage
    The Office's published brief on the interagency bilateral repo 
pilot collection noted difficulties in working with the data due to the 
absence of standardized counterparty information.\79\ Authorities from 
around the world, including those in the United States, have 
established a global legal entity identifier (``LEI'') system, with 
oversight effected by a Regulatory Oversight Committee, composed of 
those same authorities, to coordinate and oversee a global system of 
legal entity identification. A Swiss nonprofit foundation, the Global 
LEI Foundation (``GLEIF''), was established to provide operational 
governance and management of local operating units that issue LEIs. The 
LEI is a 20-character identifier based on the ISO 17442 standard that 
identifies distinct legal entities that engage in financial 
transactions. An LEI allows for unambiguous identification of firms and 
affiliates.\80\
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    \79\ See Baklanova, Caglio, Cipriani, and Copeland (January 13, 
2016).
    \80\ See Global Legal Entity Identifier Foundation, Introducing 
the Legal Entity Identifier, undated online content, https://www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei/.
---------------------------------------------------------------------------

    The Office proposes to require reporting of an LEI. The LEI 
reported must be properly maintained, meaning it must be kept current 
and up to date according to the standards implemented by the GLEIF. The 
Office believes that while requiring the LEI may result in some 
additional compliance costs, doing so is reasonable and appropriate due 
to the added clarity and substantial benefit for the monitoring it 
provides and rate production. Based on a review of the public 
membership lists of counterparties to the one expected covered 
reporter, the Office estimates that under the proposed collection, 
approximately 800 counterparties will need to acquire an LEI at a cost 
of approximately $100 per instance initially and approximately $50 on 
an annual basis thereafter, for a total aggregate cost of $80,000 to 
market participants the first year and $40,000 annually thereafter. 
Each legal entity transacting with a covered reporter will be required 
to obtain only one LEI regardless of the number of reported 
transactions. The Office recognizes that the LEI acquisition cost may 
be only a portion of the total compliance cost for repo counterparties, 
and that firms may incur additional costs stemming from the inclusion 
of the LEI in their trade reporting systems. In this regard, there are 
two viable options for including an LEI in the data fields. The first 
option is to amend the messaging system to include the LEI. The second 
option is to add LEIs of reporting entities and counterparties after 
the transactions take place but prior to submission of data to the 
Office. While this second option would require fewer parties to update 
their systems, it is possible that market participants may desire 
access to the LEIs of their counterparties for risk management 
purposes, thus making the first option preferable to member firms. 
Either option would be acceptable to the Office.
    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 requires the submission of 
the LEI of each covered reporter, direct clearing member, counterparty, 
and broker involved in a covered transaction.\81\ The LEIs of these 
entities will facilitate evaluation of the covered transaction and 
whether a covered transaction was conducted on an arm's-length basis or 
between affiliates. Further, these LEIs will reduce the need for manual 
intervention in matching identical participants that supply different 
naming conventions depending on the sponsoring broker reporting, and 
eventually, when the LEI system fully produces this capacity, in 
helping to identify parent and affiliate relationships.
---------------------------------------------------------------------------

    \81\ For purposes of the data reporting schedules, a broker is 
an entity that is an SEC-registered broker and is arranging a 
covered transaction for the accounts of other entities acting as 
cash providers or securities providers.
---------------------------------------------------------------------------

    Mandatory adoption of the LEI will 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 1 million firms have obtained an 
LEI and are therefore becoming capable of obtaining these benefits. The 
aggregate cost savings for the financial service industry upon broader 
adoption of the LEI have been estimated in the hundreds of millions of 
dollars.\82\
---------------------------------------------------------------------------

    \82\ See generally, McKinsey & Company and Global Legal Entity 
Identifier Foundation, ``The Legal Entity Identifier: The Value of 
the Unique Counterparty ID,'' (October 2017), pp. 4, 14, and 17, 
https://www.gleif.org/en/about-lei/mckinsey-company-and-gleif-creating-business-value-with-the-lei/.
---------------------------------------------------------------------------

    This proposed collection includes reporting fields for the LEIs of 
the direct clearing members that are parties to a covered transaction. 
This proposed collection also includes reporting fields for the LEIs of 
any cash or securities provider that is a counterparty to the 
transaction. For these fields, respondents should indicate the LEI of 
the indirect clearing member if one exists, and otherwise the LEI of 
the direct clearing member, that has provided cash or securities. When 
a registered broker is a counterparty to a transaction, it should be 
listed both as the broker and as a cash provider or securities 
provider.
    Questions:
    8. What, if any, challenges do participants in centrally cleared 
repo markets anticipate regarding obtaining and maintaining an LEI?
    9. What, if any, challenges do potential respondents anticipate in 
reporting the LEIs of participants in centrally cleared repo markets?

[[Page 31906]]

    10. Would respondents and repo market participants prefer to amend 
the messaging system to include LEIs, or to add LEIs of reporting 
entities and counterparties after the transactions take place but prior 
to submission of data to the Office?
ii. Transaction Information
    Transaction-level data coupled with counterparty information permit 
an understanding of detailed exposures among firms and across asset 
markets. Transaction-level data are also necessary inputs to calculate 
the SOFR and BGCR. Transaction-level data will require a unique 
identifier for each transaction. This identifier must be assigned by 
the covered reporter and never re-used for another transaction over the 
life of this proposed collection. The transaction identifier must be 
persistent throughout the life cycle of the transaction, regardless of 
any subsequent amendments to the transaction, such as substitutions of 
collateral. Because CCPs currently must track the life cycle of each 
trade for settlement purposes, some type of unique identification 
scheme already exists. Any CCP required to report under this rule would 
be required to submit its own unique, persistent transaction 
identifier. As an alternative to a reporter-generated transaction 
identifier, the Office encourages, but is not requiring, respondents to 
coordinate with their counterparties to adopt and report using the 
Unique Transaction Identifier.\83\
---------------------------------------------------------------------------

    \83\ The Unique Transaction Identifier (``UTI''), alternatively 
called Unique Swap Identifier (``USI''), is a globally unique 
identifier for individual transactions in financial markets. USIs 
were introduced in late 2012 in the United States, when reporting 
transactions to trade repositories became mandatory under the Dodd-
Frank Act. The term USI is specific to U.S. regulation, while the 
UTI represents the output of a global effort among regulators to 
harmonize transaction reporting standards across jurisdictions. The 
method for creating and maintaining UTIs was designed to support 
existing USIs and provide a global regulatory approach. Large 
trading firms reporting under multiple regulatory regimes may use 
the terms interchangeably. See CPMI-IOSCO, Consultative Report on 
Harmonization of the Unique Transaction Identifier (August 2015), 
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD500.pdf.
---------------------------------------------------------------------------

    In all cases where securities identifiers are used, the type of 
identifier must be reported, such as ISIN or CUSIP. General collateral 
trade submissions must contain information on the security asset class 
in order to identify the correct transactions for rate production. This 
field must consist of an identifier that corresponds to a set of 
agreed-upon securities. Collateral delivered against net exposures 
between firms and CCPs must also be identified using a specific 
security identifier. This provides information on how CCP exposures are 
collateralized, as well as the quantity of securities that have been 
delivered against net exposures. The general collateral trades also 
must indicate whether the securities were delivered to the CCP against 
a net security delivery obligation or received from the CCP as 
collateral against a net cash loan.
    Reporting on specific-security repos will require a security 
identifier as well as information on the quantity of securities 
delivered against a position, and whether substitution of collateral is 
permitted. Knowing the quantity of securities delivered will 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. Indicating whether 
substitution of collateral is allowed may indicate the motivation for a 
trade. In the case of transactions allowing collateral substitution, 
covered reporters are required to supply an identifier indicating the 
securities that are acceptable to the cash provider as substitutes 
under the repo for the initially pledged collateral.
    Questions:
    11. The Office is not proposing the reporting of a standardized 
transaction identifier at this point. Is this the appropriate decision 
and if so, at which point should such an identifier be required?
    12. Should the UTI be required at this point in the event that 
another covered reporter comes into existence in order to harmonize 
transactions across clearing platforms?
iii. Date and Tenor Information
    This proposed collection will require information on the start and 
end dates of transactions; the date that each transaction was agreed 
to; whether a trade has optionality; and, for repos that are open or 
have optionality, the first possible maturity of the transaction. 
Existing CCPs do not presently allow for optionality in repos or for 
open transactions, but if offered in the future, these features would 
be important to capture.
    There are a number of proposed fields regarding date and tenor 
information. The agreement timestamp is the date and time on which a 
covered transaction was agreed to. This field is critical for 
differentiating same-day-start trades from forward-settling trades. The 
information is essential to understanding how a transaction is priced 
and determining whether the transaction should be included in an 
alternative reference rate. The start date is the date on which a 
settlement obligation related to the exchange of cash and securities 
for a covered transaction first exists. The match timestamp refers to 
the time and date on which the covered transaction is matched by the 
covered reporter. The end date refers to the date on which the cash 
providers and securities providers to the covered transaction are 
obliged to return the cash and securities.
    For an open trade, no end date is to be specified, and the 
optionality field must indicate that the transaction has an open 
maturity. The minimum maturity field in this case must be used to 
indicate the next date that the interest rate is to be reset.
    For repos with optionality, the end date for a transaction must 
continue to be specified as the date that the transaction would 
terminate if no option were exercised. The optionality field indicates 
how the maturity of a transaction can be changed after initial 
agreement. Minimum maturity in this case refers to the earliest 
possible date on which the parties could be obliged to return the cash 
and securities, taking optionality into account.
    Observation days consist of all days on which a covered reporter 
accepts and processes covered transactions. For every observation day, 
covered reporters are required to submit a file of all outstanding 
transactions to the Office's collection agent by 6:00 a.m. Eastern time 
the following business day.
iv. Trade Size and Rate
    The principal amount in the centrally cleared general collateral 
trades schedule is the amount of cash borrowed or lent. This schedule 
also requires 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.
    The securities quantity field in the general collateral net 
exposure schedule for the general collateral repo collection and the 
specific-security trades schedule is defined as the principal amount or 
par value of the securities pledged in a repo transaction.
    The specific-security trades schedule includes four fields on the 
exchange of cash in these repo transactions. Information is required on 
the amount of cash exchanged by the cash and securities providers at 
the initiation and close of the trade. This schedule also requires 
information on the rates reported by the cash and securities providers.

[[Page 31907]]

v. Price of Collateral/Security
    The securities value field in the general collateral net exposure 
schedule requires the reporting of the market value of the securities 
pledged, inclusive of accrued interest. The market value of securities 
is, in combination with the identifier, important for understanding how 
CCP exposures are collateralized.
    Questions:
    13. Are the proposed reporting fields generally appropriate? Do any 
particular proposed reporting fields raise specific questions or 
concerns?
    14. 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?
    15. The proposed regulatory text contains definitions the Office 
believes are necessary. Are these definitions clear?

c. Submission Process and Implementation

    The Office intends to require submission through a collection 
agent. The Office believes this approach will decrease the costs of 
compliance for covered reporters and allow data reporting to commence 
sooner than would otherwise be possible. The Office expects that the 
Federal Reserve Board will act as the Office's collection agent, with 
required data to be submitted directly by covered reporters to the 
FRBNY. The FRBNY will transmit collected data to the Office.
    Additionally, the Office expects the FRBNY will have access to the 
reported data for purposes of the daily SOFR and BGCR rate production. 
To produce this alternative reference rate calculation, data on covered 
transactions must be submitted by respondents to the FRBNY no later 
than 6:00 a.m. Eastern time on the business day following the 
transaction. The submission process will allow for the secure, 
automated transmission of files. The Office expects that the final rule 
will 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 60 days after its effective date. The Office believes 
this implementation period will provide adequate time for covered 
reporters to comply with the proposed requirements.
    Questions:
    16. Would respondents incur additional costs due to the requirement 
for unique transaction identification? If so, please provide estimates 
of those costs.
    17. Does the proposed 60-day compliance period for a central 
counterparty that is a covered reporter on the effective date of the 
rule provide sufficient time to comply with the data reporting 
requirements?
    18. Does the two quarter phase in period for a central counterparty 
that becomes a covered reporter after the effective date of the rule 
provide sufficient time to comply with the data reporting requirements?
    19. Are there any additional costs associated with data reporting 
as contemplated by this proposed collection? If so, please provide 
estimates of those costs.
    20. 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?
    21. What, if any, barriers to entry could the requirements of this 
proposed collection create for future CCPs for repo?

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'').\84\ 
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 
Research at 717 14th Street NW, Washington, DC 20220.
---------------------------------------------------------------------------

    \84\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The proposed collection establishes the permanent collection of 
certain information on repo transactions and is a ``collection of 
information'' pursuant to the PRA. Any collection of information 
addressed to all or a substantial majority of an industry is presumed 
to involve 10 or more covered reporters.\85\ While the Office estimates 
there is only one covered reporter, the Office has undertaken a PRA 
analysis to ensure that the proposed collection will continue to be PRA 
compliant in the event additional central counterparties become subject 
to the rule's reporting requirements. The Office is an independent 
regulatory agency under the PRA \86\ 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.
---------------------------------------------------------------------------

    \85\ 5 CFR 1320.3(c)(4)(ii).
    \86\ 44 U.S.C. 3502(5).
---------------------------------------------------------------------------

    The Office anticipates that this proposed collection will require 
submission by one covered reporter, which will be required to make a 
general collateral and specific-security submission daily in accordance 
with the tables in the proposed regulatory text. The Office anticipates 
an annual burden of 1,512 hours per covered reporter. This figure is 
arrived at by estimating the daily reporting time to be approximately 3 
hours for each general collateral and specific-security submission, 
multiplied by 2 to reflect both types of submissions by the covered 
reporter, 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 2016 
Bureau of Labor Statistics Occupational Employment Statistics for 
credit intermediation and related activities (NAICS 522000). For hourly 
compensation, a figure of $75 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 32 percent to cover subsequent wage 
gains and non-wage benefits, which yields an estimate of $99 per 
hour.\87\ Using these assumptions, the Office estimates the recurring 
operational costs for general collateral and specific-security 
submissions to be $74,844 annually, for a total estimated annual cost 
to the covered reporter of $149,688.
---------------------------------------------------------------------------

    \87\ The estimate includes an assumed additional 2 percent for 
subsequent wage gains from 2016 to 2017, and 30 percent for non-wage 
employee benefits, according to the Bureau of Labor Statistics' June 
2017 Employer Costs for Employee Compensation, https://www.bls.gov/news.release/archives/ecec_09082017.htm.
---------------------------------------------------------------------------

    Office Estimates Summary:
    Title: Ongoing Data Collection of Centrally Cleared Transactions in 
the U.S.

[[Page 31908]]

Repurchase Agreement Market
    Office: Office of Financial Research.
    Frequency of Response: Daily (12 CFR 1610.10(d)).
    Affected Public: Businesses or other for-profit.
    Scope of Covered Reporters: Any central counterparty, defined as a 
clearing agency that interposes itself between the counterparties to 
transactions, whose average daily total open commitments in repurchase 
agreement contracts across all services over the prior calendar quarter 
is at least $50 billion. (12 CFR 1610.10(a), (b)(2)).
    Number of Covered Reporters: One covered reporter submitting 
information on two clearing services.
    Estimated Time Per Covered Reporter Per Submission: 6 hours.
    Number of Submissions:
    Daily submission containing both general collateral transactions 
(12 CFR 1610.10(c)(3), (4)) and specific security trades (12 CFR 
1610.10(c)(5)).
    Anticipated Annual Submissions: 252.
    Total Estimated Annual Burden: 1,512 hours.
    In addition to recurring reporting costs, the Office anticipates 
the covered reporter will 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 2,500 hours for the two general 
collateral schedules, and 2,500 hours for the specific-security 
schedule, per covered reporter. Because the Office anticipates one 
covered reporter submitting both the general collateral schedules and 
the specific-security schedule, the estimated initial start-up cost of 
required reporting for both submissions is $495,000.
    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.\88\ 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.\89\ 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.
---------------------------------------------------------------------------

    \88\ 5 U.S.C. 601 et seq.
    \89\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

    As discussed above, this proposed collection will only apply to 
CCPs for repos whose average daily total open commitments in repo 
contracts across all services over the prior calendar quarter is at 
least $50 billion. Currently, under this scope, this proposed 
collection would apply only to one entity, whose corporate parent's 
total consolidated assets were $39 billion as of March 31, 2018.\90\ 
Reporting will be required of additional central counterparties 
beginning on the first business day of the third calendar quarter after 
the calendar quarter in which such central counterparties meet the $50 
billion activity-based materiality threshold. If a covered reporter 
ceases to meet this threshold for at least four consecutive calendar 
quarters, its reporting obligations under this rule would cease.
---------------------------------------------------------------------------

    \90\ See DTCC, ``DTCC Condensed Consolidated Financial 
Statements as of March 31, 2018 and December 31, 2017 and for the 
three months ended March 31, 2018 and 2017,'' http://www.dtcc.com/~/
media/Files/Downloads/legal/financials/2018/DTCC-Condensed-
Consolidated-Financial-Statements-Q1-2018.pdf.
---------------------------------------------------------------------------

    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 $550 million or less in assets.\91\ For purposes of the RFA, 
entities that are banks are considered small entities if their assets 
are less than or equal to $550 million. The size of the activity-based 
threshold in this proposed collection ensures that any respondent will 
be well beyond these small entity definitions.
---------------------------------------------------------------------------

    \91\ 13 CFR 121.201.
---------------------------------------------------------------------------

    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:
    22. Are the requirements in the proposal clearly stated? If not, 
how could the proposed rule be more clearly stated?
    23. Does the proposed rule contain language or jargon that is not 
clear? If so, which language requires clarification?
    24. 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

    Confidential business information, Economic statistics, Reference 
rates, Repurchase agreements, Clearing, Central counterparty, Data 
collection.

0
For the reasons stated in the preamble, the Office of Financial 
Research proposes to add 12 CFR Part 1610 as set forth below:

PART 1610--REGULATORY DATA COLLECTIONS

Subpart A--Collections Generally
Sec.
1610.1 General Authority
1610.2 General Definitions
1610.3 Treatment of Collected Information
1610.4-9 [Reserved]
Subpart B--Specific Collections
Sec.
1610.10 Centrally Cleared Repurchase Agreement Data


    Authority: 12 U.S.C. 5343 and 5344

Subpart A--Collections Generally


Sec.  1610.1  General Authority.

    The collections under this part are made pursuant to the authority 
contained in 12 U.S.C. 5343(a) and (c)(1) and 5344(b).


Sec.  1610.2  General Definitions.

    Council means the Financial Stability Oversight Council.
    Legal Entity Identifier or LEI for an entity shall mean the global 
legal entity identifier maintained for such entity by

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a utility accredited by the Global LEI Foundation or by a utility 
endorsed by the Regulatory Oversight Committee that satisfies the 
standards implemented by the Global LEI Foundation. As used in this 
definition:
    (1) Regulatory Oversight Committee means the Regulatory Oversight 
Committee (of the Global LEI System), whose charter was set forth by 
the Finance Ministers and Central Bank Governors of the Group of Twenty 
and the Financial Stability Board, or any successor thereof; and
    (2) Global LEI Foundation means the not-for-profit organization 
organized under Swiss law by the Financial Stability Board in 2014, or 
any successor thereof.
    Office means the U.S. Department of the Treasury's Office of 
Financial Research.


Sec.  1610.3  Treatment of Collected Information.

    The Office will treat any financial transaction data or position 
data submitted to the Data Center under this part in accordance with 
the relevant provisions of law, including 12 U.S.C. 5343(b) and 
5344(b).


Sec.  1610.4-9  [Reserved]

Subpart B--Specific Collections


Sec.  1610.10  Centrally-Cleared Repurchase Agreement Data.

    (a) Definitions.
    Central counterparty means a clearing agency that interposes itself 
between the counterparties to transactions, acting functionally as the 
buyer to every seller and the seller to every buyer.
    Clearing agency has the same meaning as set forth in 15 U.S.C. 
78c(a)(23).
    Covered reporter means any central counterparty for repurchase 
agreement transactions that meets the criteria set forth in Paragraph 
(b)(2); provided, however, that any covered reporter shall cease to be 
a covered reporter only if it does not meet the dollar threshold 
specified in Paragraph (b)(2) for at least four consecutive calendar 
quarters.
    General collateral trade means a repurchase agreement transaction 
in which the trade reported to the central counterparty is for a 
category of securities as opposed to a specific security.
    Repurchase agreement transaction means an agreement of a 
counterparty to transfer securities to another counterparty in exchange 
for the receipt of cash, and the simultaneous agreement of the former 
counterparty to later reacquire the same securities (or any 
subsequently substituted securities) from that same counterparty in 
exchange for the payment of cash; or an agreement of a counterparty to 
acquire securities from another counterparty 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 counterparty in exchange for the 
receipt of cash.
    Specific-security trade means a repurchase agreement transaction 
where the trade as reported to the central counterparty is for a 
mutually agreed upon specific security.
    (b) Purpose and Scope. (1) Purpose: The purpose of this data 
collection is to require the reporting of certain information to the 
Office about repurchase agreement transactions cleared through a 
central counterparty. The information will be used by the Office to 
support the Council and member agencies by facilitating financial 
stability monitoring including research consistent with support of the 
Council and its member agencies and for the publication of alternative 
reference rates.
    (2) Scope of Application: Reporting under this Section is required 
by any central counterparty for repurchase agreement transactions whose 
average daily total open commitments in repurchase agreement contracts 
(gross cash positions prior to netting) across all services over all 
business days during the prior calendar quarter is at least $50 
billion.
    (c) Data Required. (1) Covered reporters shall report trade and 
collateral information on all repurchase agreement transactions, 
subject to Paragraph (c)(2), in accordance with the prescribed 
reporting format in this section.
    (2) Covered reporters shall only report trade and collateral 
information with respect to any repurchase agreement transaction for 
which there is a current or future delivery obligation as of the file 
observation date, including forward-starting transactions.
    (3) Covered reporters shall submit the following data elements for 
all general collateral transactions:

                   Table 1--General Collateral Trades
------------------------------------------------------------------------
         Data element                         Explanation
------------------------------------------------------------------------
File Observation Date........  The observation date of the file
                                (typically one business day before the
                                day the file is submitted).
Covered Reporter LEI.........  The Legal Entity Identifier of the
                                covered reporter.
Transaction ID...............  Respondent-generated unique transaction
                                identifier.
Submission Timestamp.........  Time that trade is first submitted to
                                clearing service.
Match Timestamp..............  Time that trade is matched by clearing
                                service.
Securities Asset Class         Asset class identifier.
 Identifier.
Securities Asset Class         Type of securities identifier used.
 Identifier Type.
Cash Provider LEI............  The Legal Entity Identifier of the cash
                                provider.
Cash Provider Direct Clearing  The Legal Entity Identifier of the direct
 Member LEI.                    clearing member through which the cash
                                provider accessed the clearing service.
Securities Provider LEI......  The Legal Entity Identifier of the
                                securities provider.
Securities Provider Direct     The Legal Entity Identifier of the direct
 Clearing Member LEI.           clearing member through which the
                                securities provider accessed the
                                clearing service.
Broker LEI...................  The Legal Entity Identifier of the
                                broker.
Start Date...................  The start date of the repurchase
                                agreement.
End Date.....................  The date the repurchase agreement
                                matures.
Rate.........................  The repurchase agreement rate, expressed
                                as an annual percentage rate on an
                                actual/360-day basis.
Principal....................  The amount of cash borrowed or lent.
Optionality..................  The type of optionality, if any, in the
                                repurchase agreement.
Minimum Maturity.............  The earliest possible date on which the
                                transaction could end in accordance with
                                its contractual terms (taking into
                                account optionality).
------------------------------------------------------------------------


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    (4) Covered reporters shall submit the following data elements on 
the collateral delivered against net general collateral exposures for 
all general collateral transactions:

                Table 2--General Collateral Net Exposure
------------------------------------------------------------------------
         Data element                         Explanation
------------------------------------------------------------------------
File Observation Date........  The observation date of the file
                                (typically one business day before the
                                day the file is submitted).
Covered Reporter LEI.........  The Legal Entity Identifier of the
                                covered reporter.
Direct Clearing Member LEI...  The Legal Entity Identifier of the direct
                                clearing member of the clearing service.
Transaction Side.............  Indicates the side of the transaction:
                                collateral was received by or delivered
                                from the covered reporter.
Securities Identifier........  Identifier of securities transferred.
Securities Identifier Type...  Type of securities identifier used.
Securities Quantity..........  Par value or quantity (as applicable) of
                                securities transferred.
Securities Value.............  The market value as of most recent
                                valuation of securities transferred,
                                including accrued interest.
------------------------------------------------------------------------

    (5) Covered reporters shall submit the following data elements for 
all specific-security trades:

                    Table 3--Specific-Security Trades
------------------------------------------------------------------------
         Data element                         Explanation
------------------------------------------------------------------------
File Observation Date........  The observation date of the file
                                (typically one business day before the
                                day the file is submitted).
Covered Reporter LEI.........  The Legal Entity Identifier of the
                                covered reporter.
Transaction ID...............  Respondent-generated unique transaction
                                identifier.
Cash Provider LEI............  The Legal Entity Identifier of the cash
                                provider.
Cash Provider Direct Clearing  The Legal Entity Identifier of the direct
 Member LEI.                    clearing member through which the cash
                                provider accessed the clearing service.
Securities Provider LEI......  The Legal Entity Identifier of the
                                securities provider.
Securities Provider Direct     The Legal Entity Identifier of the direct
 Clearing Member LEI.           clearing member through which the
                                securities provider accessed the
                                clearing service.
Broker LEI...................  The Legal Entity Identifier of the
                                broker.
Submission Timestamp.........  Time that trade is first submitted to
                                clearing service.
Match Timestamp..............  Time that trade is matched by clearing
                                service.
Start Date...................  The start date of the repurchase
                                agreement.
End Date.....................  The date when the repurchase agreement
                                matures; the close leg settlement date.
Optionality..................  The type of optionality, if any.
Minimum Maturity.............  The earliest possible date on which the
                                transaction could end in accordance with
                                its contractual terms (taking into
                                account optionality).
Security Identifier..........  Identifier of pledged security.
Securities Identifier Type...  Type of securities identifier used.
Securities Quantity..........  Par value or quantity (as applicable) of
                                securities transferred.
Substitution Collateral        Asset class identifier or no
 Identifier.                    substitution.
Substitution Collateral        Type of securities identifier used.
 Identifier Type.
Cash Provider Start Leg        The amount of cash transferred by the
 Amount.                        cash provider on the open leg of the
                                transaction.
Securities Provider Start Leg  The amount of cash received by the
 Amount.                        securities provider on the open leg of
                                the transaction.
Cash Provider Rate...........  The rate of interest received by the cash
                                provider, expressed as an annual
                                percentage rate on an actual/360-day
                                basis.
Securities Provider Rate.....  The rate of interest paid by the
                                securities provider, expressed as an
                                annual percentage rate on an actual/360-
                                day basis.
Cash Provider Close Leg        The amount of cash received by the cash
 Settlement Amount.             provider on the close leg of the
                                transaction.
Securities Provider Close Leg  The amount of cash paid by the securities
 Settlement Amount.             provider on the close leg of the
                                transaction.
------------------------------------------------------------------------

    (d) Reporting Process and Collection Agent. The Office may 
designate a collection agent for the data reporting. Covered reporters 
shall submit the required data for the previous business day by 6:00 
a.m. Eastern time on the following business day.
    (e) Compliance. (1) Any central counterparty that is a covered 
reporter as of the effective date of this Section shall comply with the 
reporting requirements pursuant to this Section 60 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.\1\
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    \1\ For example, if this Section becomes effective on March 15, 
a central counterparty that meets the dollar threshold specified in 
Paragraph (b)(2) for the calendar quarter ending the previous 
December 31 will be required to submit its first report on the first 
business day after May 14.
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    (2) Any central counterparty 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

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business day of the third calendar quarter following the calendar 
quarter in which such central counterparty meets the dollar threshold 
specified in Paragraph (b)(2).\2\
---------------------------------------------------------------------------

    \2\ For example, a central counterparty that meets the dollar 
threshold specified in Paragraph (b)(2) in a calendar quarter ending 
March 31 will become a covered reporter subject to the reporting 
requirements pursuant to this Section on the following October 1 and 
will be required to submit its first report on that date.


Kenneth J. Phelan,
Acting Director, Office of Financial Research.
[FR Doc. 2018-14706 Filed 7-9-18; 8:45 am]
 BILLING CODE 4810-25-P-P