[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37091-37109]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08999]
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DEPARTMENT OF THE TREASURY
Office of Financial Research
12 CFR Part 1610
Ongoing Data Collection of Non-Centrally Cleared Bilateral
Transactions in the U.S. Repurchase Agreement Market
AGENCY: Office of Financial Research, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of Financial Research (the ``Office'') within the
U.S. Department of the Treasury (``Treasury'') is adopting a final rule
(the ``Final Rule'') establishing a data collection for certain non-
centrally cleared bilateral transactions in the U.S. repurchase
agreement (``repo'') market. This collection requires daily reporting
to the Office by certain brokers, dealers, and other financial
companies with large exposures to non-centrally cleared bilateral repo
(``NCCBR''). The collected data will be used to support the work of the
Financial Stability Oversight Council (the ``Council''), its member
agencies, and the Office to identify and monitor risks to financial
stability.
DATES:
Effective date: July 5, 2024.
Compliance Dates: See the amendment to 12 CFR 1610.11(e).
FOR FURTHER INFORMATION CONTACT: Michael Passante, Chief Counsel,
Office of Financial Research, (202) 921-4003,
[email protected], Sriram Rajan, Associate Director of
Financial Markets, Office of Financial Research, (202) 594-9658,
[email protected], or Laura Miller Craig, Senior Advisor,
Office of Financial Research, (202) 927-8379,
[email protected].
SUPPLEMENTARY INFORMATION:
I. Executive Summary
The Office is adopting the Final Rule to establish an ongoing data
collection for certain non-centrally cleared bilateral transactions in
the U.S. repo market. The Final Rule will require reporting by certain
covered reporters for repo transactions that are not centrally cleared
and have no tri-party custodian. The purpose is to enhance the ability
of the Council, Council member agencies, and the Office to identify and
monitor risks to financial stability. Under the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the ``Dodd-Frank Act''), the Office
is authorized to issue rules and regulations to collect and standardize
data that supports the Council in fulfilling its duties and purposes,
such as identifying risks to U.S. financial stability. In a 2022
statement on nonbank financial intermediation, the Council supported a
recommendation that the Office consider ways to obtain better data on
the NCCBR market segment, and in July 2022 and February 2024, the
Office consulted with the Council on efforts to collect NCCBR data.\1\
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\1\ Financial Stability Oversight Council Statement on Nonbank
Financial Intermediation. February 4, 2022. https://home.treasury.gov/news/press-releases/jy0587; Meeting minutes. FSOC,
July 28, 2022, page 7; Readout: Financial Stability Oversight
Council Meeting on February 23, 2024. https://home.treasury.gov/news/press-releases/jy2122.
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This collection requires reporting on NCCBR transactions, which
currently comprise the majority of repo activity by several key
categories of financial companies, such as hedge funds. This collection
will provide visibility and transparency into a crucial segment of the
U.S. repo market, the one remaining market segment for which
transaction-level data is not available to regulators.\2\
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\2\ Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and Sharon Y. Ross.
``Non-centrally Cleared Bilateral Repo.'' OFR Blog. Office of
Financial Research. August 24, 2022. https://www.financialresearch.gov/the-ofr-blog/2022/08/24/non-centrally-cleared-bilateral-repo/.
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Collection of information on the NCCBR segment of the repo market
is critical to understanding potential financial stability risks. The
data to be collected under the Final Rule will enable the Office to
monitor risks in this market. Because the Council's duties relate to
monitoring and responding to potential financial stability risks, the
collection will support the Office's statutory mandate to support the
work of the Council.
The Office issued its Notice of Proposed Rule Making (``NPRM'' or
``proposed rules'') for a 60-day public comment period, ending on March
10, 2023.\3\ In response, the Office received more than 30 comment
letters conveying a range of perspectives.\4\ Although the majority of
commenters supported the proposed collection, noting the potential
benefits to the monitoring of risks to financial stability, several
identified issues that the Office has addressed in the discussion below
and, in some cases, through regulatory text changes reflected in the
Final Rule. In making these changes, the Office intends to minimize the
burden of the Final Rule while ensuring that the purposes of the
collection as expressed in the NPRM and below are met.
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\3\ Department of the Treasury. Collection of Non-centrally
Cleared Bilateral Transactions in the U.S. Repurchase Agreement
Market. Proposed Rule, 88 FR 1154 (January 9, 2023). https://www.federalregister.gov/d/2022-28615, hereafter cited as 88 FR 1154.
\4\ Comment letters to the proposed rules may be found at
https://www.regulations.gov/document/TREAS-DO-2023-0001-0001/comment.
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Since the publication of the NPRM, two new regulations were adopted
that are relevant to the Office's collection. The Office believes that
one of these will materially affect this collection. On December 13,
2023, the U.S. Securities and Exchange Commission (SEC) adopted rules
under the Securities Exchange Act of 1934 (``Exchange Act'') to amend
the standards applicable to covered clearing agencies for U.S. Treasury
securities. The final rules require that every direct participant of
the covered clearing agency submit for clearance and settlement all
repo activity collateralized by U.S. Treasury securities to which it is
a counterparty (the ``SEC's central clearing rules'').\5\ On February
6, 2024, the SEC also adopted new rules to further define the phrase
``as part of a regular business'' as used in the statutory definitions
of ``dealer'' and ``government securities dealer.'' \6\ The Office has
considered the likely
[[Page 37092]]
impact of these rules on its NCCBR collection, as described below.
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\5\ Securities and Exchange Commission. Standards for Covered
Clearing Agencies for U.S. Treasury Securities and Application of
the Broker-Dealer Customer Protection Rule with Respect to U.S.
Treasury Securities. Final Rule, 89 FR 2714 (January 16, 2024).
https://www.federalregister.gov/d/2023-27860.
\6\ Securities and Exchange Commission. Further Definition of
``As a Part of a Regular Business'' in the Definition of Dealer and
Government Securities Dealer in Connection with Certain Liquidity
Providers. Final Rule, 89 FR 14938 (Feb. 29, 2024). (``Further
Definition of `As a Part of a Regular Business' '') https://www.federalregister.gov/d/2024-02837.
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II. Background and Description of the Final Rule
The following discussion summarizes the proposed rules, the
comments received, and the Office's responses to those comments,
including modifications reflected in the Final Rule.
II(a) Structure of the Repo Market and Purpose of the Final Rule
As noted in the NPRM, the collection of data pursuant to this Final
Rule will support the Council, its member agencies, and the Office in
carrying out their responsibilities through the use of the data to
identify and monitor potential financial stability risks in the U.S.
repo market.
The repo market can be divided into four segments, which span the
different combinations of centrally cleared and non-centrally cleared,
tri-party, and bilateral repo.\7\ For three of these segments, data are
currently collected by regulators. The collection under the Final Rule
has been designed to fill a critical gap in regulators' information on
the overall repo market by collecting data on the NCCBR segment, the
last segment for which regulators do not have a transaction-level data
source.
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\7\ 88 FR 1154, 1156, citing Kahn, R. Jay, and Luke M. Olson.
``Who Participates in Cleared Repo?'' Brief no. 21-01, Washington,
DC: Office of Financial Research, 2021. For more background, see
Baklanova, Viktoria, Adam Copeland, and Rebecca McCaughrin.
``Reference Guide to U.S. Repo and Securities Lending Markets.''
Working Paper no. 15-17, Washington, DC: Office of Financial
Research, 2015.
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As noted in the NPRM, the need for a collection of data on this
segment of the market to assist policymakers' understanding of the repo
market has been recognized by the Council since 2016, when it first
called for the Office to establish a permanent repo data collection.\8\
This lack of visibility was felt acutely following two recent episodes
of stress in repo markets. The first of these recent episodes involved
a spike in repo market rates in September 2019 and the second a decline
in Treasury prices, which spilled over to the repo market through
higher rates, in March 2020. For both of these episodes, substantial
portions of activity in these crucial funding markets could not be
observed. In the wake of these episodes, market participants and the
official sector have pointed to this segment as a critical blind spot
in a market that plays a key role in financial stability.\9\
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\8\ Financial Stability Oversight Council. 2016 Annual Report,
page 14, Washington, DC: FSOC, 2016. https://home.treasury.gov/system/files/261/FSOC-2016-Annual-Report.pdf.
\9\ Logan, Lorie K. ``Treasury Market Liquidity and Early
Lessons from the Pandemic Shock.'' Remarks, Brookings-Chicago Booth
Task Force on Financial Stability Meeting, 2020; International
Monetary Fund. 2020. ``United States: Financial Sector Assessment
Program Technical Note: Risk Oversight and Systemic Liquidity;''
Liang, Nellie, and Pat Parkinson. ``Enhancing Liquidity of the U.S.
Treasury Market Under Stress.'' Working Paper no. 72, Washington,
DC: Brookings Hutchins Center on Fiscal and Monetary Policy, 2020;
BlackRock. 2020. ``Lessons from COVID-19: Market Structure Underlies
Interconnectedness of the Financial Market Ecosystem.'' BlackRock
ViewPoint; Bank Policy Institute. 2020. ``Necessary Dimensions of a
Holistic Review of the Meltdown of U.S. Bond Markets in March;''
Citadel Securities. 2021. ``Enhancing Competition, Transparency, and
Resiliency in U.S. Financial Markets;'' Feldberg, Greg. ``Fixing
Financial Data to Assess Systemic Risk.'' Brookings Economic
Studies, 2020; Brookings Hutchins Center on Fiscal and Monetary
Policy. 2021. ``Report of the Task Force on Financial Stability.''
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Both of these episodes illustrate that the NCCBR market segment may
be subject to the systemic vulnerabilities discussed below and perhaps
has become even more central to the functioning of U.S. securities and
short-term funding markets. Though these vulnerabilities are present to
a greater or lesser extent across the four segments of the repo market,
certain characteristics of the NCCBR segment may be especially prone to
such vulnerabilities and exacerbate the risks in other segments.
II(b) NCCBR Market Segment Characteristics That May Increase Financial
Stability Risks
In the NPRM, the Office noted the framework set forth in its
centrally cleared repo rule \10\ for understanding activity in the
overall repo market and the associated vulnerabilities across five
functions that repo provides: (1) a low-risk cash investment, (2)
monetization of assets, (3) transformation of collateral, (4)
facilitation of hedging, and (5) more generally, a support for
secondary market liquidity and pricing efficiency.\11\
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\10\ Department of the Treasury. Ongoing Data Collection of
Centrally Cleared Transactions in the U.S. Repurchase Agreement
Market. Final Rule, 84 FR 4975 (Feb. 20, 2019). https://www.federalregister.gov/d/2018-14706.
\11\ 88 FR 1154, 1157. https://www.federalregister.gov/d/2022-28615.
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Certain characteristics of the NCCBR market segment may increase
the potential for risks to financial stability relative to other
segments. However, data gaps have limited the ability of financial
regulators to monitor risks and vulnerabilities in this segment.
Additionally, because abrupt changes in these characteristics can have
financial stability consequences, addressing data gaps is important.
The NPRM highlighted collateral risk as a key motivation for the
collection. The NCCBR market segment generally involves riskier
collateral than other repo segments, because centrally cleared markets
are limited to Fedwire-eligible collateral, such as Treasuries and
agency bonds. Data from the Federal Reserve Bank of New York's Primary
Dealer Statistics show that 95% of primary dealer repo lending against
non-Fedwire-eligible collateral (including asset-backed securities,
corporate debt, and other securities) is conducted through the NCCBR
market segment. These collateral types are riskier than Treasury and
agency securities. Supported by riskier collateral, the NCCBR market
segment may be more exposed to the risks associated with monetizing
assets.
The NCCBR market segment also has counterparty complexity that
warrants attention. Many counterparties in this market are not as
active in the centrally cleared or tri-party repo markets, which are
market segments about which more data are available to financial
regulators. The NCCBR market segment facilitates a large amount of cash
borrowing by highly leveraged entities such as hedge funds.\12\ As a
result, financial regulators and market participants do not have
sufficient information on the overall complexity and extent of hedge
funds' daily repo borrowing to assess potential risks. For instance,
financial regulators did not have access to sufficient data to
understand the risk management practices of Long-Term Capital
Management (LTCM).\13\ LTCM, a hedge fund that failed in 1998, built up
large counterparty exposures through NCCBR.\14\ The firm conducted its
repo and reverse-repo transactions with 75 different counterparties,
many of which were reportedly unaware of the nature of LTCM's total
exposure. These large exposures created through repo were a key source
of systemic stress from LTCM's failure, as liquidations of the
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underlying collateral in bankruptcy could have resulted in
significantly depressed prices and broader market disruptions.\15\
While transparency into other segments of the repo market has increased
since 1998, the NCCBR market segment has remained opaque.
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\12\ Hempel, Samuel, R. Jay Kahn, Vy Nguyen, and Sharon Y. Ross.
2022. ``Non-centrally Cleared Bilateral Repo.'' August 24, 2022. The
OFR Blog. Office of Financial Research. https://www.financialresearch.gov/the-ofr-blog/2022/08/24/non-centrally-cleared-bilateral-repo/.
\13\ ``Long-Term Capital Management: Regulators Need to Focus
Greater Attention on Systemic Risk: Report to Congressional
Requesters,'' United States. General Accounting Office, 1999.
\14\ Parkinson, Patrick M. ``Report on Hedge Funds, Leverage,
and the Lessons of Long-Term Capital Management. Testimony, U.S.
House, May 6, 1999, Congress, Washington, DC: Federal Reserve Board,
1999. https://www.federalreserve.gov/boarddocs/testimony/1999/19990506.htm; Dixon, Lloyd, Noreen Clancy, and Krishna B. Kumar.
2012. Hedge Funds and Systemic Risk. Santa Monica, California: RAND
Corporation. http://www.jstor.org/stable/10.7249/j.ctt1q60xr.11.
\15\ Parkinson, Patrick M. ``Report on Hedge Funds, Leverage,
and the Lessons of Long-Term Capital Management.'' Testimony, U.S.
House, May 6, 1999, Congress, Washington, DC: Federal Reserve Board,
1999.
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NCCBR market participants engage in varying risk management
conventions, but insufficient information regarding these conventions
is available to enable an assessment of their efficacy. These
conventions include, but are not limited to, margining and settlement
practices. For instance, the variation in margining practices across
competing intermediaries may create competitive pressures that drive
margins to lower levels than what prudent risk management would
indicate.\16\ There may also exist widely subscribed margining
practices which could exacerbate financial stability vulnerabilities in
times of stress. For instance, the cross-margining of repo,
derivatives, and futures exposures could result in lower precautionary
risk buffers, even in the presence of leverage, than if cross-margining
practices were not in place. In times of stress, inadequate margins may
be insufficient to buffer payment failures between firms and can result
in consequential financial contagion. Additionally, risks exist in
relation to operational aspects of the transaction lifecycle. For
instance, the Treasury Market Practices Group found that settlement
practices vary widely and expressed concern that ``bespoke bilateral
processes may reflect differences in the level of understanding among
market participants of the inherent risks of Securities Financing
Transaction (SFT) clearing and settlement.'' \17\ Collectively, NCCBR
risk management concerns interrelationships between firms within this
and other markets and spans risks that are not uniquely contained in
the NCCBR segment.
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\16\ See also Group of Thirty Working Group on Treasury Market
Liquidity. U.S. Treasury Markets: Steps Toward Increased Resilience.
Washington, DC: Group of Thirty, G30, 2021, which notes that
competitive pressures in the repo market can often ``drive haircuts
down (sometimes to zero).''
\17\ Treasury Market Practices Group. ``TMPG Releases Updates
for Working Groups on Clearing and Settlement Practices for Treasury
SFTs, Treasury Market Data and Transparency.'' Press Release,
November 5, 2021: TMPG. https://www.newyorkfed.org/medialibrary/Microsites/tmpg/files/PressRelease_110521.pdf.
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Activity across the different segments of the repo market is
linked. For example, the NCCBR market segment can serve as a close
substitute for centrally cleared bilateral repo. This is particularly
the case in the sponsored segment of the market for customers that are
not direct clearing members of the Fixed Income Clearing Corporation
(FICC), a subsidiary of the Depository Trust & Clearing Corporation,
such as hedge funds and money market funds. These customers can
participate in transactions with clearing members and have such
transactions submitted to FICC for central clearing. As a result,
migration to and from sponsored repo is also an area of interest for
regulators concerned with a proper assessment of dealer balance sheets.
Activity may move between sponsored repo and NCCBR in times of stress
or in response to incentives created by financial reporting dates.
Dealers' decisions to transact in NCCBR or in sponsored repo may also
be affected by factors that affect the degree to which various
constraints are binding for the dealers, including regulatory ratios
and counterparty credit limits. Examples of these factors include
changes in the supply of cash to the repo market from money market
funds and the netting benefits provided by sponsored repo. To
understand these shifts between NCCBR and sponsored repo, data on
outstanding commitments in the NCCBR market segment are required.
The development of guaranteed repo is another factor that may
affect flows between NCCBR and sponsored repo. A guaranteed repo is a
repo in which the performance of one or both counterparties are
guaranteed by a third-party guarantor. This is typically, but not
exclusively, used to account for potential variation in value of the
collateral provided by the cash borrower. Because guaranteed repo
replicates the profile of offsetting legs of the same repo transaction
with different counterparties yet has different balance sheet
implications, guaranteed repo may be an alternative to sponsored repo.
Since guaranteed repos would represent a similar exposure to offsetting
repo transactions, it is essential to include these activities in this
collection to gain a full understanding of the NCCBR segment of the
repo market.
In addition to the specific data gaps noted above, because the
NCCBR market segment has no central counterparty or tri-party custodian
and due to the lack of transparency, lack of standardized risk
management practices, the presence of riskier collateral underlying
some trades, and counterparties with large exposures in the market,
these data will provide insights into potential financial system
vulnerabilities.\18\ Many of the counterparties involved in the NCCBR
segment, such as non-banks and non-primary dealers, are difficult to
monitor with existing regulatory collections. Transaction-level data
will provide the official sector with the granularity necessary to
understand the exposures of market participants on a high-frequency
basis. This is essential in a market where monthly or quarterly
reporting may not provide timely indications of future stress or
provide detailed data on recent periods of stress. Additionally, data
on collateral will enable regulators to monitor exposures to particular
classes of securities, margining practices that protect participants
from fluctuations in collateral values, and the potential transmission
of stress from the repo markets to securities markets or other markets.
Timestamps and details of trading venues will allow regulators to
monitor activity in a market that is often segmented and in which
intraday liquidity concerns can play a key role in the creation or
propagation of stress.
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\18\ Schulhofer-Wohl, Sam; McCormick, Matthew. 2022. ``Expanded
central clearing would increase Treasury market resilience.'' Dallas
Fed Economics, December 23, 2022. https://www.dallasfed.org/research/economics/2022/1223.
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Thus, the collection of transaction-level data on the NCCBR segment
of the repo market marks a significant step in carrying out the
Council's recommendation to expand and make permanent the collection of
data on the U.S. repo market.\19\ It will assist the Council's
effective identification and monitoring of emerging threats to the
stability of the U.S. financial system by closing the remaining gap in
coverage of the U.S. repo market, following the Office's previous
rulemaking on the centrally cleared repo market. By collecting data
from certain brokers, dealers, and other financial companies with more
than $10 billion in extended guarantees and outstanding NCCBR cash
borrowing, the Office initially expects to observe more than 90% of
NCCBR transactions by volume, with approximately 40 covered reporters
in Category 1 (as discussed below) expected at the time of publication
of the Final Rule.
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\19\ Financial Stability Oversight Council. 2016 Annual Report,
page 14, Washington, DC: FSOC, 2016. https://home.treasury.gov/system/files/261/FSOC-2016-Annual-Report.pdf.
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II(c) Effects of Recent Regulations on the Office's Collection
On December 13, 2023, the SEC adopted a final rule on central
clearing in the U.S. Treasury market, and on February 12, 2024, the SEC
adopted a
[[Page 37094]]
final rule expanding dealer registration. This section discusses the
effects of these rules on the Office's collection under the Final Rule.
II(c)(1) SEC's Central Clearing Rules
The SEC's central clearing rules, adopted December 13, 2023, are
designed to facilitate additional clearing of transactions involving
U.S. Treasury securities. The rules require covered clearing agencies
in the U.S. Treasury market to require that any direct participant of
such covered clearing agency submit for clearance and settlement all
the eligible secondary-market transactions to which the direct
participant is a counterparty.\20\ The compliance date for the SEC's
requirements for the central clearing of repo transactions is June 30,
2026. After that date, the Office anticipates that a large portion of
Treasury repo transactions will migrate from the NCCBR segment to the
centrally cleared segments.
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\20\ The definition of the term ``eligible secondary market
transaction'' lists certain transactions that may be excluded from
central clearing. Two notable exclusions are inter-affiliate trades
and trades in which the direct member is a facilitator or agent
rather than a direct counterparty. 89 FR 2829, https://www.federalregister.gov/d/2023-27860.
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The Office has considered the effect of the SEC's central clearing
rules on the riskiness of transactions that will remain in the NCCBR
segment, the size of the NCCBR segment, the Office's coverage of the
NCCBR segment, and the Office's coverage of repo transactions overall.
The Office expects transparency and financial stability of the repo
market to improve following the implementation of the SEC's central
clearing rules. However, the Office's collection will continue to be
essential for monitoring a substantial portion of the riskiest trades
in the repo market and will provide visibility into a segment that may
grow and change in response to future developments.
Impact on the riskiness of NCCBR transactions: One reason that the
collection of data from the NCCBR segment will remain important is that
this segment will retain substantially all of the risks described
above. While Treasury repo trades by financial companies that are
members of covered clearing agencies will largely be centrally cleared
as a result of the SEC's central clearing rules, the remaining trades
will likely be riskier, such as those backed with lower-quality
collateral or those with smaller, riskier financial companies that
currently cannot be members of clearing agencies. Because the FICC is
limited to Fedwire-eligible collateral, considerable volume in the
NCCBR segment is backed by collateral that is generally considered to
be riskier, such as private-label asset backed securities (ABS) and
corporate debt.21 22 This collateral will comprise a larger
share of the NCCBR segment after the migration of Treasury repo to
central clearing. Similarly, the FICC imposes certain limits on direct
membership that ensure only sounder counterparties can become direct
and sponsoring members. Thus, after the SEC's central clearing rules
are fully implemented, the remaining trades in the NCCBR segment will
generally be conducted by riskier counterparties.
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\21\ For more detailed information on the use of non-Treasury
collateral in the NCCBR market segment, see Baklanova, Caglio,
Cipriani, and Copeland. ``The Use of Collateral in Bilateral
Repurchase and Securities Lending Agreements.'' Federal Reserve Bank
of New York Staff Reports, no. 758, 2016: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr758.pdf; Hempel, Kahn, Paddrik, and Mann. 2023. ``Why is so much
Repo Not Centrally Cleared? '' Brief no. 23-01, Washington, DC:
Office of Financial Research, May 12, 2023: https://www.financialresearch.gov/briefs/2023/05/12/why-is-so-much-repo-not-centrally-cleared/.
\22\ FICC is currently the sole provider of clearance and
settlement services for U.S. Treasury securities.
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Impact on the size of the NCCBR segment: The Office expects the
size of the NCCBR segment to shrink significantly when most Treasury -
collateralized repo activity moves to central clearing. Although there
is uncertainty associated with the effect of the SEC's central clearing
rules on the structure of the repo market, the Office expects the rules
to change the scope of the transactions reported under the Final Rule
due to the reduction in the total volume of transactions in the NCCBR
segment. In the NPRM, the Office estimated that the proposed rules'
coverage of the NCCBR segment would be greater than 90%; using the same
methodology, this segment coverage would decline to 75% after
implementation of the SEC's central clearing rules.
However, because the NCCBR segment will materially change following
full implementation of the SEC's central clearing rules, different
estimation methodologies might be warranted. Accordingly, the Office
developed two additional estimates. The first estimate assumes that all
Treasury-collateralized repo activity moves into central clearing
following full implementation of the SEC's central clearing rules. The
second estimate assumes a modest amount of Treasury-collateralized repo
remains in NCCBR. Certain exemptions to the SEC's central clearing
rules make this modest amount realistic, as discussed below.
In the first estimate, the collection would cover 56% of the
remaining NCCBR segment volume. The Office believes that this scenario
is unlikely because it assumes that all Treasury repo will migrate to
central clearing. In the second estimate, the collection would cover
75% of NCCBR volume if as little as 15% of the Treasury volume remains
in the NCCBR segment. The assumption that 15% of volume remains is
reasonable because certain Treasury-collateralized repo transactions
are exempt from the SEC central clearing rules, including certain
inter-affiliate trades. The Office's 2022 NCCBR pilot data collection
suggests that the percentage of total NCCBR trading volume that is
inter-affiliate may be much greater than 15%.
In addition, other Treasury repo transactions may be exempt from
central clearing because they are not allowed under the FICC's
sponsored clearing model. For example, trades with embedded
optionality, such as open repos, are not allowed in sponsored repo, and
it is uncertain how many of those trades will remain in the NCCBR
segment after full implementation of the SEC's central clearing rules.
Exceptions to the SEC's central clearing rules could therefore result
in the collection covering more than 75% of the remaining NCCBR volume.
Under these two estimates, the NCCBR market segment would shrink
from $2.3 trillion daily outstanding volume as of Q4 2021 to between
roughly $300 billion and $600 billion daily outstanding volume.
Although this will be a significant reduction in the size of the NCCBR
segment, the Office believes a market of this size is large enough to
warrant continued monitoring in light of the risks particular to this
segment, as highlighted above and considered further below. A number of
multibillion-dollar market segments are important to financial
stability and are subject to reporting. For example, the Office
currently collects information on the centrally cleared tri-party
segment of the market, conducted under FICC's General Collateral
Finance (GCF) Repo Service, which had $450 billion outstanding on
January 22, 2024. While the GCF segment is similar in magnitude to what
the Office projects for the NCCBR collection subsequent to the
implementation of the SEC's central clearing rules, collateral quality
is much lower in the NCCBR segment, because GCF is limited to Treasury
and agency collateral. Further, counterparty risk in NCCBR is higher
both because of the presence of a central counterparty in
[[Page 37095]]
GCF and because FICC imposes limits on direct membership.
Additionally, although the sizes of exposures to the NCCBR segment
are likely to be smaller once the SEC's central clearing rules are
implemented, exposures of this scale can still pose risks to financial
stability. For example, the Council's Hedge Fund Working Group found
that the failure of Archegos Capital, which had approximately $30
billion in capital borrowed through total return swaps that are in many
ways similar to NCCBR transactions, ``transmitted material stress to
large, interconnected financial institutions.'' \23\
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\23\ Financial Stability Oversight Council Press Release,
February 4, 2022: https://home.treasury.gov/news/press-releases/jy0587 (accessed January 24, 2024).
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Impact on the collection's coverage of the NCCBR segment: As stated
above, the Office expects that the collection will cover between 56%
and 75% of the transaction volume that remain in the NCCBR market
segment. Because overall volumes in the NCCBR segment will decrease,
the Office also expects the number of covered reporters to decrease.
The Office estimates the number of covered reporters to decrease from
40 to 6 to 15, respectively, under the two estimates described above.
Notwithstanding these changes, the Office believes collecting this
data remains important. The remaining entities in this market will
continue to be the largest participants in the repo market, and this
market will still make up a material portion of their balance sheets,
so capturing this exposure will be important for monitoring how
financial stress in the NCCBR segment might spill over into the other
segments of the repo market. The Office continues to view the $10
billion exposure threshold as a reasonable size for a financial company
to be considered material in this segment and notes that although the
NPRM included a question on this threshold, no commenters expressed
concern with this number. Additionally, the Office believes that
reporting by Category 1 and Category 2 covered reporters (as discussed
below) with exposures above this threshold will provide material
coverage of the NCCBR segment to monitor risks without imposing undue
reporting burdens on the industry.
As further support for maintaining the $10 billion materiality
threshold proposed in the NPRM, the Office notes that even exposures
below the $10 billion threshold can have financial stability
consequences, especially in short-term funding markets such as the repo
market where run risk is present. For instance, the run on the Reserve
Primary Fund, a money market mutual fund that failed to redeem
investors at the $1.00 net asset value per share in September 2008
following the collapse of Lehman Brothers, was triggered by the fund's
exposure to $785 million of commercial paper issued by Lehman Brothers.
This exposure was far less than the Office's aggregate repo cash
borrowing threshold of $10 billion in NCCBR, yet the Reserve Primary
Fund contributed materially to a crisis of confidence in the financial
system. The risks were illustrated by a 2013 study that found an
additional 20 money market mutual funds faced par redemption challenges
similar to the Reserve Primary Fund during the same week.\24\ While
those money market mutual fund exposures may have varied, the financial
instability resulted from a source much smaller than the materiality
threshold in the Final Rule.
---------------------------------------------------------------------------
\24\ McCabe, P.E., Cipriani, M., Holscher, M. and Martin, A.,
2013. ``The Minimum Balance at Risk: A Proposal to Mitigate the
Systemic Risks Posed by Money Market Funds.'' Brookings Papers on
Economic Activity, 2013(1), pages 211-278.I think.
---------------------------------------------------------------------------
Impact on the Office's overall coverage of the repo market: The
combination of the SEC's central clearing rules and the Office's NCCBR
data collection will significantly improve visibility into transactions
that currently take place in the NCCBR segment. While the SEC's rules
will have the effect of channeling more Treasury repo transactions into
central clearing, the Office's Final Rule will cover data gaps that
currently exist and could develop in NCCBR. Additionally, the Final
Rule will provide transparency with respect to potential future market
changes. An example of such a change is guaranteed repo, which could
emerge as an alternative to centrally cleared repo. The Final Rule will
provide insight into any changes in the size of the NCCBR market
segment. Further, the Final Rule will provide transparency into repo
activity involving collateral that is not eligible for central
clearing. Therefore, after the implementation of the SEC's central
clearing rules, the NCCBR collection will continue to fill a critical
data gap because without the collection, regulators would have limited
insight into risks in this segment.
II(c)(2) SEC's Expansion of Dealer Registration Requirements
On February 6, 2024, the SEC adopted new rules to further define
the phrase ``as a part of a regular business'' as used in the statutory
definitions of ``dealer'' and ``government securities dealer.'' \25\
These new rules could affect the collection under the Final Rule
because, as described in the NPRM and below, registered dealers and
government securities dealers are subject to the requirement to report
their transactions to the Office if their NCCBR activity exceeds the
materiality threshold in the Final Rule. While the SEC's recent
amendments will expand the population of dealers and government
securities dealers, those changes are unlikely to expand the number of
NCCBR covered reporters at this time, because companies that are newly
defined as dealers or government securities dealers are unlikely to
pass the materiality threshold in the Final Rule. The Office expects
that substantially all newly registered dealers and government
securities brokers and dealers will be either principal trading firms
(PTFs) or hedge funds employing high-frequency trading (HFT)
strategies. In both cases, these firms employ strategies that involve
rapid trading throughout the day, matching buyers and sellers, and
exploiting spreads between bid and ask prices. For firms that do not
carry significant inventories, like some PTFs or HFTs, participation in
repo is likely negligible since they have no inventories to fund. As a
result, the Office expects that few, if any, of the additional firms
registering as dealers or government securities dealers under the SEC's
recent amendments will be subject to NCCBR reporting, so the
implementation of these SEC rules should have limited effect on the
NCCBR collection.
---------------------------------------------------------------------------
\25\ Further Definition of `As a Part of a Regular Business,' 89
FR 14938. https://www.federalregister.gov/d/2024-02837.
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II(d) Uses of the Data Collection
The data to be collected pursuant to the Final Rule will be used by
the Office to fulfill its purpose, responsibilities, and duties under
Title I of the Dodd-Frank Act, including improving the Council's and
Council member agencies' monitoring of the financial system and
identification and assessment of potential financial stability risks.
The data reported in this collection will facilitate the identification
and evaluation of potential repo market vulnerabilities and trends that
could be destabilizing or indicate stresses in the financial system.
For example, risks might be reflected in indicators of the volume or
cost of funding in the repo market, differentiated by the type and
credit quality of participants, quality of underlying collateral, and
tenor of
[[Page 37096]]
transactions. Analyzing the collateral data from this collection
together with other available data will enable a clearer understanding
of collateral flows in securities markets and associated potential
financial stability risks.
One use of the data will be to monitor the transition between the
time that the NCCBR collection commences and when, under the SEC's
central clearing rules, certain Treasury repo trades will be required
to migrate to central clearing.\26\ The NCCBR collection will provide
contemporaneous information to regulators and policymakers on the
progress of market participants in moving to central clearing. Because
the SEC's central clearing rules will involve significant changes in
market structure and there is uncertainty regarding how markets will
respond to its implementation, this information on progress and risks
associated with the transition will be invaluable.
---------------------------------------------------------------------------
\26\ The Final Rule requires that a ``covered reporter whose
volume falls below the $10 billion threshold for at least four
consecutive calendar quarters would have its reporting obligations
cease.'' As a result, the Office expects to collect data from
approximately 40 reporters until as late as June 2027, 12 months
after the SEC's June 30, 2026, compliance date for central clearing
of Treasury repo trades.
---------------------------------------------------------------------------
The Office may also use the data to sponsor and conduct additional
research. This research may include using these data to help fulfill
the Office's duties and purposes under the Dodd-Frank Act relating to
the responsibility of the Office's Research and Analysis Center to
support the Council.\27\ For example, access to data on NCCBRs will
allow the Office to conduct research related to the Council's
monitoring of potential risks arising from securities financing
activities and nonbank financial companies.
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\27\ 12 U.S.C. 5344(c) discusses the various uses of data by the
Office's Research and Analysis Center, and 12 U.S.C. 5344(b)
discusses the duties of the Office's Data Center, on behalf of the
Council.
---------------------------------------------------------------------------
As noted in the NPRM, and consistent with the Dodd-Frank Act, the
Office may share the data collection and information with the Council,
Council member agencies, and the Bureau of Economic Analysis and will
also make the data available to the Council and member agencies as
necessary to support their regulatory responsibilities. The NPRM also
noted that data and information shared as described above 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. Such sharing will be subject to the
confidentiality and security requirements of applicable laws, including
the Dodd-Frank Act.\28\ Pursuant to the Dodd-Frank Act, the submission
of any non-publicly available data to the Office under this 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.\29\
---------------------------------------------------------------------------
\28\ 12 U.S.C. 5343(b), 5344(b)(3).
\29\ 12 U.S.C. 5322(d)(5).
---------------------------------------------------------------------------
After consulting with Council member agencies as consistent with
the Dodd-Frank Act, the Office further advised in the NPRM that certain
data, including aggregate or summary data from this collection, may be
provided to financial industry participants and the general public to
increase market transparency and facilitate research on the financial
system. In doing so, it is important 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.\30\
---------------------------------------------------------------------------
\30\ 12 U.S.C. 5344(b)(6).
---------------------------------------------------------------------------
Commenters identified concerns about data privacy and security,
anonymization, and aggregation of the data when disclosing data as
described above. One commenter encouraged the Office to require in the
Final Rule that data be anonymized and aggregated prior to being
disclosed to the public. One commenter stated that anonymization and
aggregation of publicly reported data was required to prevent covered
reporters from violating privacy regulations or contractual
confidentiality terms. Other commenters indicated that disclosure of
data not anonymized or aggregated could lead to negative effects for
markets and market participants and depending on the timing and nature
of the disclosure, disclosure of even aggregate repo transactions could
inadvertently reveal proprietary information of financial companies.
One comment letter recommended that the Office consult in advance with
market participants regarding the timing and granularity of any
disclosure. Another commenter recommended that public disclosure occur
after two business days from the date of the report.
The Office reiterates that data will be available to the public and
financial industry participants only 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.\31\ The Office
further confirms that it will not disclose raw data to the public and
that any work product disclosed to the public will consist only of
anonymized, aggregated, or otherwise masked data.
---------------------------------------------------------------------------
\31\ 12 U.S.C. 5344(b)(6).
---------------------------------------------------------------------------
One comment letter requested that the Office clarify how it will
anonymize the aggregated data for public reporting. The Office employs
a number of techniques to protect underlying raw data from public
disclosure, including the use of anonymization, summaries, aggregation,
masking, compliance with applicable data security and privacy laws, and
compliance with internal review and approval protocols designed to
protect the underlying data from public disclosure.
One commenter recommended that when sharing data from the
collection with other regulators, the Office should make clear that the
information is confidential and subject to all applicable laws and
regulations regarding subsequent sharing of the information. The
commenter also recommended that Office employees and consultants be
subject to additional confidentiality requirements regarding the use or
dissemination of data collected under the Final Rule. Another comment
letter requested that the Office specify any IT security protocols that
will be used to guarantee the security of the data that will be
collected. The Office has a statutory responsibility to ensure that
data collected by the Office is kept securely and protected from
unauthorized disclosure; and data shared with other regulatory agencies
must be maintained with at least the same level of security as is used
by the Office.\32\ Additionally, for purposes of preventing
unauthorized access to data or loss of data, the Federal Information
Security Modernization Act of 2014 (FISMA) requires that federal
agencies, including the Office and federal regulatory agencies, provide
information security protections commensurate with the risk and
magnitude of harm resulting from unauthorized access, use, or
disclosure of information collected by or on behalf of an agency. The
information collected pursuant to the Final Rule will be handled in
accordance with the Office's data access, security, and control
policies and procedures. The Office will comply with applicable privacy
and data protection laws and regulations, including but not limited to
FISMA, and will require that any regulatory agencies that receive
business confidential information utilize appropriate confidentiality
and security protocols in
[[Page 37097]]
compliance with FISMA and other applicable laws.
---------------------------------------------------------------------------
\32\ 12 U.S.C. 5343(b)(1) and 12 U.S.C. 5344(b)(3).
---------------------------------------------------------------------------
III. Collection Design
The regulatory text lists the requirements specifically relevant to
this collection. This includes a table describing the data elements
that covered reporters will be required to submit. As outlined below,
the Office is publishing reporting instructions and technical guidance
on the Office's website regarding matters such as data submission
mechanics and formatting in connection with the Final Rule.
III(a) Scope of Entities
The Final Rule establishes the scope of entities subject to
reporting. Specifically, reporting is required by financial companies
(as defined in the Final Rule) that fall within either of two
categories:
Category 1: a securities broker, securities dealer,
government securities broker, or government securities dealer whose
average daily outstanding commitments to borrow cash and extend
guarantees in NCCBR transactions with counterparties over all business
days during the prior calendar quarter is at least $10 billion,\33\ and
---------------------------------------------------------------------------
\33\ The terms broker and dealer are defined in 15 U.S.C.
78c(a)(4) and (5), respectively. Broker and dealer registration
requirements are contained in 15 U.S.C. 78o. The terms government
securities broker and government securities dealer are defined in 15
U.S.C. 78c(a)(43) and (44), respectively. Government securities
broker and government securities dealer registration requirements
are contained in 15 U.S.C. 78o-5.
---------------------------------------------------------------------------
Category 2: any financial company that is not a securities
broker, securities dealer, government securities broker, or government
securities dealer and that has over $1 billion in assets or assets
under management, whose average daily outstanding commitments to borrow
cash and extend guarantees in NCCBR transactions, including commitments
of all funds for which the company serves as an investment adviser,
with counterparties that are not securities brokers, securities
dealers, government securities brokers, or government securities
dealers over all business days during the prior calendar quarter is at
least $10 billion.
The Office intends to consider a financial company to have assets
or assets under management exceeding $1 billion if the company meets
one or more of the following criteria:
if the firm is an investment adviser registered pursuant
to the Investment Advisers Act of 1940 provides continuous and regular
supervisory or management services to securities portfolios valued in
the aggregate at $1 billion or more in assets under that law;
if the firm files a required disclosure of its balance
sheet with a federal or state financial regulator and has more than $1
billion in assets under any such disclosure;
if the firm discloses its assets to investors or creditors
in audited financial statements, and has more than $1 billion in assets
under that disclosure;
if the firm has disclosed assets in filings with the
Internal Revenue Service and has more than $1 billion in assets under
that disclosure.
As noted in the NPRM, the Office distinguishes between assets and
assets under management in the criteria above in light of the manner in
which an agent acts on the part of other parties. Investment advisers
provide investment management services as fiduciaries, using a wide
variety of models and vehicles. They engage in activities such as
entering into repo, acting as cash borrowers, and buying and selling
derivatives on behalf of clients. These activities can take place at
the managed fund or portfolio level or at the adviser level with the
resulting trades subsequently allocated to their managed funds or
portfolios. Unlike other financial companies, the value of these assets
is not fully reflected on the balance sheet of the adviser. As a
result, the use of assets under management better represents the market
value of investment activities provided and should be used in the
threshold computation.
The Office received several comments relating to investment
advisers within the framework of the proposed rules. One commenter
stated that reporting by an investment adviser based on its aggregate
assets under management is inappropriate, as investment advisers merely
execute investment strategies on behalf of their managed funds, with
each fund having an individualized strategy that may include repo
transactions. It further stated that trading of fund assets and
positions is never executed with the adviser as the principal obligor,
but rather must be allocated to the appropriate fund as the principal
obligor. The commenter suggested that the Office instead use the assets
under management of individual funds since, notwithstanding any
execution of trades on a bunched or similar basis, each individual fund
is the principal obligor, and the investment adviser must act
consistent with each fund's investment strategy. As the commenter
acknowledged, trading may be executed on a bunched basis across
multiple funds to obtain consistent pricing for each fund with
allocation to individual funds to follow, consistent with the Office's
stated reasoning for aggregating assets across funds in the calculation
of assets under management. These transactions are conducted on the
adviser level, and the Office believes that limiting the threshold
calculation to individual funds would lead to an incomplete picture of
the repo market, because the data would no longer contain the necessary
context for determining the financial stability risks implied by an
investment adviser's transactions. For example, margining practices are
a risk the collection may be used to monitor. Since haircuts are a
transaction term often negotiated at the level of the investment
adviser, it is important to have the full set of transactions
negotiated with a given haircut to assess the riskiness of margining
practices. For these reasons, the Office does not consider the issue of
principal obligor status to be important for the purposes of this type
of monitoring.
Another commenter asserted that investment advisers to private
funds are already subject to significant oversight and compliance
obligations and, in the context of systemic risk, report extensive
information on Form PF regarding collateral and counterparty exposures,
among other information. They also stated that the scope of entities
covered by the proposed rules would result in duplicative and costly
reporting requirements on investment advisers, which, in turn, would
dilute the quality of the data reported and increase costs to funds'
investors. However, although investment advisers may be subject to
other oversight and compliance obligations as noted in the NPRM, based
on its review of existing data collections, the Office has found no
other transaction-level, daily collection of this data. Moreover,
commenters on the NPRM did not identify a duplicative data collection
at this level of granularity and frequency that would otherwise enable
the Office adequately to monitor financial stability risks in this
market.
Another commenter similarly suggested that registered investment
advisers (RIAs) be excluded from eligibility for Category 2 reporting,
and that Category 1 be extended to include banking entities. The
commenter stated that if Category 1 were to be extended in such a
manner, an RIA would be unlikely to undertake covered transactions with
a financial company that was not in Category 1, and as a result, the
inclusion of RIAs in Category 2 would be redundant. It also asserted
that if Category 1 were not extended to include banking entities, the
potential for an RIA to become subject to Category
[[Page 37098]]
2 reporting could lead to Category 2 entities generally preferring to
transact with Category 1 entities (where this does not impact the price
at which they transact), leading to distortions. Accordingly, it
suggested that excluding RIAs from Category 2 would not ultimately
reduce the effectiveness of the Office's data collection. However, this
commenter provided no data to support this assertion, and the Office
sees such concerns about trading preferences as speculative in nature.
In relation to this commenter's proposal to extend the definition of
Category 1 covered reporters, the Office has declined to add banking
entities to the enumerated categories of entities contained in Category
1, as discussed below. Additionally, given the gaps in visibility into
this market, the risks from leveraged funds that are operated by RIAs,
and the potential for future developments in this market that shift
activity away from traditional intermediaries, the Office continues to
view the collection of data from RIAs as essential to its ability to
effectively monitor financial stability risks.
Several commenters stated that inter-affiliate repo transactions
should not be required to be reported and should not count toward the
Category 1 and Category 2 covered reporter thresholds. One commenter
noted that inter-affiliate transactions occur for operational reasons,
and another commenter noted that these transactions are typically risk
transfers with no market impact. They additionally suggested that data
on transactions between affiliates would not be useful for
understanding the repo market. The Office believes that reporting on
these trades can provide insight into the fragilities and sources of
financing within entities and between financial companies.
Additionally, in contrast to the views expressed by the commenters,
recent research shows that transactions between affiliates can play an
important role in repo markets.\34\ Information on these transactions
is important for risk monitoring purposes. For instance, large
transfers of cash from banks to affiliated dealers can indicate
decreasing liquidity for dealers that could be an early warning
indicator of stress. Another example of inter-affiliate transactions
that are important to monitor from a financial stability perspective
are those in which broker-dealers engage in centrally cleared trades on
behalf of affiliated asset managers and then conduct back-to-back non-
centrally cleared legs between the broker-dealers and the affiliated
asset managers. While one commenter stated that collecting data on
these types of transactions would be duplicative of information already
collected by FICC, it is in fact an example of the importance of
collecting inter-affiliate transactions, because exposures to repo
would be incorrectly attributed to broker-dealer affiliates instead of
asset managers without data on this back-to-back leg. As the Office's
intention is to collect information on the full scope of financial
activity in repo markets and inter-affiliate transactions are valuable
for financial stability monitoring, inter-affiliate transactions are to
be considered when calculating Category 1 and Category 2 reporting
thresholds and should be reported.
---------------------------------------------------------------------------
\34\ See Ricardo Correa, Wenxin Du, and Gordon Y. Liao, 2020.
``U.S. Banks and Global Liquidity,'' International Finance
Discussion Papers 1289, Board of Governors of the Federal Reserve
System (U.S.); and Cecilia R. Caglio, Adam Copeland, and Antoine
Martin, 2021. ``The Value of Internal Sources of Funding Liquidity:
U.S. Broker-Dealers and the Financial Crisis,'' Staff Reports 969,
Federal Reserve Bank of New York.
---------------------------------------------------------------------------
Another commenter suggested that other categories of potential
covered reporters be removed from the rules' coverage. The commenter
stated that subjecting buy-side entities, such as advisers of private
funds that predominantly enter into transactions with financial
intermediaries like broker-dealers or banks or their affiliates, to
reporting would be unwarranted. The Office understands that, at
present, the majority of NCCBR transactions involving private funds,
funds managed by RIAs, and other buy-side entities is likely conducted
with Category 1 counterparties. However, as noted in the NPRM, without
a comprehensive collection, the extent of transactions without a
Category 1 counterparty is not knowable. Additionally, even if today it
is unlikely that an investment adviser, adviser to a private fund, or
other buy-side financial company would undertake a transaction with a
non-Category 1 financial company, the NPRM explicitly noted the
Office's intention to cover potential future changes in repo market
structure. These may include peer-to-peer repo that bypasses Category 1
financial companies.
Another commenter suggested that money market funds and mutual
funds be exempted from reporting because such funds do not generally
enter repo transactions in the role of borrower and are unlikely to
have outstanding commitments to borrow cash in the bilateral repo
markets that meet the reporting threshold. The Office agrees that money
market funds are generally unlikely to borrow cash in repo markets and
generally do not play roles resembling intermediaries in these markets,
and the Office does not generally expect money market funds to fall
within the scope of Category 1 or Category 2. However, mutual funds
have been known to borrow in repo markets. To the extent an adviser for
mutual funds may manage a number of investment vehicles or
relationships that in the aggregate could exceed the reporting
threshold, including them in the data collection would enhance the
ability of the collection to provide information regarding run risks
and liquidity risks.\35\
---------------------------------------------------------------------------
\35\ See Antoine Bouveret, Antoine Martin, and Patrick E.
McCabe, 2022. ``Money Market Fund Vulnerabilities: A Global
Perspective,'' Staff Reports 1009, Federal Reserve Bank of New York;
and Antoine Bouveret and Jie Yu, 2021. ``Risks and Vulnerabilities
in the U.S. Bond Mutual Fund Industry,'' Working Paper 21/109,
International Monetary Fund.
---------------------------------------------------------------------------
Several commenters suggested that the Office add banks to the set
of financial companies covered by Category 1. One commenter stated that
while U.S. broker-dealers represent a significant proportion of market
activity, sizable positions are also maintained by foreign and domestic
banks, including U.S. branches of foreign banks. Another commenter
stated that there would be duplicative reporting from asset managers
and funds if banks are included in Category 1. The Office has attempted
in the structure of the Final Rule to limit duplicative reporting by
financial companies. For instance, the exclusion of brokers and dealers
from the reporting threshold calculation for Category 2 limits the
scope of Category 2 covered reporters. However, requiring Category 2
companies to remove transactions with Category 1 companies from their
reports under the Final Rule could increase their reporting burdens. In
some cases, determining whether a transaction has already been reported
may be more costly for covered reporters than simply reporting the
duplicate transaction. Additionally, the Office notes that reducing the
potential for dual reporting by assigning reporting responsibility
solely to the dealer would not be possible in cases where the dealer is
not subject to reporting requirements, such as a dealer that is not a
U.S. financial company. Therefore, in the interest of keeping the
determination of reporting obligations clear, the Office will continue
with the reporting structure as outlined in the NPRM.
Another commenter suggested that the reporting burden would be
lower if banks were included in Category 1 because banks may be
affiliated with other Category 1 covered reporters. Commenters noted
that if banks were
[[Page 37099]]
included in Category 1, transactions with banks would be excluded from
the Category 2 threshold calculation, making it less likely that
certain financial companies would qualify as Category 2 covered
reporters. Two comment letters also asserted that if Category 1 is not
expanded to include banks, it could lead to migration of repo trades
from other entities to Category 1 financial companies.
The NPRM included within Category 1 SEC-registered brokers,
dealers, government securities brokers, and government securities
dealers. While many repo transactions by financial companies occur with
counterparties other than those types of entities included in Category
1, the Office believes that the vast majority of transactions occur
with Category 1 entities.
Analysis by the Office of data from call reports suggests that over
90% of gross repo by U.S. depository institutions is conducted by
depository institutions that are registered as government securities
dealers. Therefore, as stated in the NPRM, the Office continues to
believe that nearly all NCCBR trades are intermediated by either
dealers or are intermediated by financial companies that may be
required to report under the Category 1 criteria, such as government
securities dealers.\36\ As such, the Office believes that any
duplicative reporting from asset managers and others resulting from the
exclusion of banks from Category 1 would be minimal. Additionally,
unless incorporated or organized under federal or state law, U.S.
branches of foreign banks are not considered financial companies as
defined under the Final Rule. As a result, submissions by Category 2
covered reporters under the Final Rule would be the only way these
trades would be reported to the Office. Additionally, in relation to
the repo activities for foreign banks, as the NPRM noted, because of
the lack of transparency in the existing market and the possibility of
trades that bypass traditional intermediaries,\37\ it is essential to
include financial companies that are large cash borrowers from sources
other than Category 1 to ensure a robust framework for monitoring
financial stability in the repo market going forward.
---------------------------------------------------------------------------
\36\ 88 FR 1154, 1163.
\37\ Id.
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One commenter suggested that RIAs be excluded from the Final Rule
if Category 1 were extended to include banking entities. The commenter
also noted that it would be unlikely that a fund managed by an RIA
would undertake a covered transaction with an entity that was not in
Category 1 and therefore, the inclusion of RIAs in Category 2 would be
redundant. As discussed above, the Office has not added banking
entities to Category 1. Nevertheless, the Office understands that it
may be likely that RIAs currently conduct the majority of their NCCBR
transactions with Category 1 financial companies, including banking
entities' affiliates that are registered government securities dealers.
However, without a comprehensive data collection, the extent of
transactions without a Category 1 counterparty is unknown.
Additionally, even if it is unlikely a fund managed by an RIA would
undertake a transaction with a non-Category 1 financial company, the
Office in the NPRM explicitly stated its intention to cover potential
future expansions in repo such as peer-to-peer repo that bypasses
Category 1 financial companies. To the extent that funds managed by
RIAs engage in repo transactions exclusively with Category 1 entities,
they would not be covered reporters under Category 2. However, if RIAs
were to be excluded entirely from the Final Rule, any transactions with
counterparties outside of Category 1 would not be captured, leaving a
crucial gap in the ability of regulators to effectively monitor
financial stability risks in this market.
The same commenter asserted that banking entities should be added
to Category 1 because the definition of ``financial company'' used in
12 U.S.C. 5381 is limited because it relates to the operation of the
Orderly Liquidation Authority under Title II of the Dodd-Frank Act. As
a result, the commenter stated, such term should instead reference the
definition in 12 U.S.C. 5344. For the reasons stated above, the Office
has declined to add banking entities to Category 1.
One commenter also requested clarification on several points of
interpretation related to Category 1 financial companies. First, the
commenter incorrectly asserted that the NPRM's preamble text indicated
that the reporting requirements would only apply in the context of a
covered reporter that is a cash borrower, and that they believed that
the Office intended to limit Category 1 to the enumerated financial
companies when acting as cash borrowers and requested confirmation of
such an understanding. Notwithstanding the fact that the same section
of the NPRM also explicitly included the extension of guarantees within
the transactional threshold applicable to Category 1 financial
companies, the regulatory text in both the NPRM and the Final Rule
makes clear that Category 1 is not limited to financial companies when
acting as cash borrowers, but also includes financial companies when
extending guarantees.
Second, the commenter noted that one instance of the description of
Category 1 financial companies in the preamble to the NPRM did not
explicitly reference the $10 billion materiality threshold and asked
whether the Office intended to include a materiality threshold in both
categories of financial companies. The NPRM and the Final Rule make
clear that the $10 billion threshold applies to both Category 1 and
Category 2 financial companies.
Third, the commenter requested clarification as to whether Category
1 is intended to cover only principal transactions (and not agency
transactions) by financial companies. Consistent with the explanation
in the NPRM, the Category 1 calculation should include obligations of
the financial company and guarantees extended by the financial company.
For purposes of calculating the Category 1 threshold, a financial
company should exclude transactions in which it acts as an agent--such
that it incurs no obligation and extends no guarantee. Unlike
investment advisers, the Office is not aware of dealers, brokers,
government securities dealers, or government securities brokers that
package their trades together with those of their clients that use the
dealers or brokers as their agent. The case in which a Category 1
financial company acts as an agent for a customer but not as an
investment adviser is therefore distinct from the case of investment
advisers conducting batched trades on behalf of the funds they advise
as described above.
Fourth, the commenter requested clarification as to whether, when a
financial company is registered as a government securities broker or
dealer for certain limited activities, the proposed rules would apply
only to those certain limited activities of the registered financial
company or whether all activity of the financial company would be
captured by the Category 1 calculation. As set forth in the regulatory
text in both the NPRM and the Final Rule, all commitments to borrow
cash or extend guarantees in NCCBR transactions should be included in
the determination of total commitments for the purposes of reporting,
regardless of whether the firm is acting in its capacity as a
government securities broker or dealer or in some other capacity.
Similarly, all
[[Page 37100]]
commitments to borrow cash or lend cash in repo or transactions where
guarantees are extended by the firm should be reported to the Office.
Finally, the commenter requested clarification, for the purpose of
determining the $10 billion threshold in Category 2, about whether
foreign banks and foreign broker-dealers should be treated as Category
1 financial companies and how transactions should be considered if the
foreign entity is an affiliate of a U.S. bank or broker-dealer. As set
forth in the Final Rule, for purposes of calculating the $10 billion
threshold, potential Category 2 covered reporters should exclude repo
borrowing and guarantees extended to counterparties that are securities
brokers, securities dealers, government securities brokers, or
government securities dealers (as each such term is defined in the
Final Rule), regardless of whether those counterparties are Category 1
covered reporters. If a counterparty is an affiliate of a securities
broker, securities dealer, government securities broker, or government
securities dealer (as each such term is defined in the Final Rule), but
is not one of these types of financial companies, transactions with the
counterparty should be included in the calculation of the Category 2
threshold.
III(b) Scope of Transactions
Consistent with the NPRM, the Final Rule defines a non-centrally
cleared bilateral repurchase agreement transaction as an agreement in
which one party agrees to sell securities to a second party in exchange
for the receipt of cash, and the simultaneous agreement of the former
party to later reacquire the same securities (or any subsequently
substituted securities) from that same second party in exchange for the
payment of cash; or an agreement of a party to acquire securities from
a second party 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 party in exchange for the receipt of cash. In all cases, the
agreement neither involves a tri-party custodian nor is cleared through
a central counterparty. This definition includes, but is not limited
to, transactions that are executed under a Master Repurchase Agreement
(MRA) or Global Master Repurchase Agreement (GMRA), or which are agreed
to by the parties as subject to the provisions of 11 U.S.C. 559.
Notwithstanding the above, transactions conducted under a Securities
Lending Agreement (SLA), a Master Securities Lending Agreement (MSLA),
or Global Master Securities Lending Agreement (GMSLA) are not
considered repurchase agreements, nor are repurchase agreements arising
from either participation in a commercial mortgage loan or the initial
securitization of a residential mortgage loan. The Office has chosen to
exclude SLA, MSLA, and GMSLA transactions from the Final Rule because
reporting of data related to such transactions to the Office could be
redundant (and therefore unnecessary) in light of the required
reporting of securities lending information to a registered national
securities association as provided for in the SEC's recent securities
lending transparency rules.\38\
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\38\ Securities and Exchange Commission. Reporting of Securities
Loans, Final Rule, 88 FR 75644 (Nov. 3, 2023). https://www.federalregister.gov/d/2023-23052.
---------------------------------------------------------------------------
The NPRM requested comment on whether sell/buy-back transactions
should be excluded from the Final Rule. While sell/buy-back agreements
accomplish similar goals to repo transactions, the Office proposed not
to include sell/buy-back agreements with the understanding that these
agreements are recorded differently from MRA, GMRA, MSLA, and GMSLA
agreements and may have different characteristics and names from the
preceding types.\39\ In response, one commenter noted that sell/buy-
backs are now almost entirely documented (e.g., under the Buy/Sell Back
Annex to the GMRA and a similar annex to the SIFMA MRA). Further, this
commenter noted that differences in methods of quoting and terminology
of sell/buy-back agreements are legacies that are insubstantial and
have dwindled in importance. Excluding sell/buy-backs from the Final
Rule could be costly in requiring covered reporters to distinguish
between nearly identically documented agreements and might also enable
covered reporters to avoid disclosing a transaction by executing such
economically similar transactions under a different form of agreement.
Therefore, sell/buy-back agreements are included within the scope of
transactions covered under the Final Rule.
---------------------------------------------------------------------------
\39\ 88 FR 1154, 1164.
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Several commenters posed questions regarding guarantees,
specifically with respect to the calculation of reporting thresholds
and whether various guarantee arrangements fall within the scope of
reporting. As noted in the NPRM, the extension of a guarantee to a repo
transaction replicates the profile of traditional repo intermediation
by offsetting direct transactions with the counterparties to the
guaranteed repo, and therefore its inclusion in the data collection is
essential to providing regulators a complete picture of the repo
market. Guarantees encompass any agreement pursuant to which a
financial company that is not one of the two direct counterparties to a
repo transaction commits to provide protection against the risk of a
failure to perform for that repo transaction under the terms of the
repo by one of the direct counterparties. For every transaction,
including guaranteed repo transactions, all the data elements should be
reported as detailed below and in the reporting instructions.
One commenter asked whether, for purposes of determining if a
financial company has met the position thresholds to be a covered
reporter, the financial company should aggregate the repos in which the
firm is a cash borrower together with the repos for which the firm is a
guarantor on behalf of a cash borrower, and whether a separate file
should be submitted for guarantee arrangements. The same commenter also
asked whether a firm would be considered a covered reporter if its repo
cash borrowings exceed the applicable threshold for the prior quarter,
but the firm does not guarantee any repos (or the firm's repo
guarantees do not exceed the applicable threshold). Data on guarantee
arrangements should be submitted in the same file. The $10 billion
threshold for Category 1 or Category 2 is calculated based on the
aggregate combined amount of a financial company's cash borrowings in
NCCBR transactions and the guarantees extended by the financial company
in NCCBR transactions.
One commenter asked whether the $10 billion threshold calculation
include repo transactions with and guarantees extended to affiliates. A
repo transaction or an extension of a guarantee to an affiliate creates
an exposure of the covered reporter to its affiliate. The resulting
risks are within scope of the Final Rule's purpose, and the transaction
should be reported and included in the total transaction volume used
for the Category 1 and Category 2 thresholds.
Another commenter asked whether indemnified repo entered into as
part of cash collateral reinvestment associated with securities lending
should be included under guarantees. Because these transactions
replicate the profile of offsetting legs between a securities lender
and the securities lending agent and between the securities lending
agent and a third party, and because the resulting risks are within
scope of the Final Rule's purpose, this would be reported to the
Office. However, the commenter asserted that nearly all of
[[Page 37101]]
the indemnified repo is done with Category 1 financial companies as
counterparties or is centrally cleared. The Office notes that
guarantees extended to centrally cleared repo transactions, sponsored
repo transactions, and tri-party transactions are not covered by the
scope of this Final Rule, and that transactions with Category 1
financial companies are not included in the calculation of reporting
thresholds for Category 2 financial companies, reducing the potential
for duplicative reporting associated with indemnified repo.
Two commenters requested clarification around whether ``shortfall
guarantees,'' transactions in which a financial company offers a
guarantee only on the uncollateralized portion of a repo, would be
considered guarantees and if so, whether reporters should consider the
full amount of the repo transaction being guaranteed or only the size
of the shortfall guarantee when calculating their repo commitments. A
shortfall guarantee replicates the exposure of an intermediary standing
between a cash borrower and a cash lender, since repo transactions are
all collateralized and the loss the intermediary is exposed to is the
size of the uncollateralized portion of the repo transaction. As such,
the resulting risks are within scope of the Final Rule's purpose and
should be included in reporting and, since the exposure replicated is
the same as the exposure the intermediary would undertake if it were
intermediating the full amount of the transaction, the amount used to
calculate a potential covered reporter's transaction volume should be
the full amount. To illustrate, for $95 lent against a market value of
$90 in collateral, the measurement of guarantee obligations used to
calculate transaction volume should be reported as $95 rather than a
shortfall exposure. Since the cash amount being guaranteed is the $95,
rather than the shortfall value, this is considered the exposure for
the purpose of the threshold calculation. This exposure would then be
added to the total commitments by the borrower to borrow cash or lend
cash in repo transactions for the purposes of calculating the total
threshold based on repo exposure, and the repo transaction would be
reported in the same file as other transactions. One of the commenters
requested clarification on the manner by which a covered reporter
should report the various data elements for a guarantee that does not
have a specified cap, or a guarantee on behalf of a non-U.S. entity.
For all guarantee transactions, regardless of the existence of any cap
or whether the relevant entity is a U.S. entity, the reported data
elements should cover the entirety of the underlying transaction.
The NPRM noted that some transactions covered under the proposed
rules would likely be with counterparties outside of the United States,
noting the potential benefit of greater information on cross-border
exposures associated with repo borrowing and the concern of potential
circumvention.\40\ This would include transactions by the covered
reporter settled internationally or denominated in currencies other
than in U.S. dollars. Some commenters sought clarification of how the
rules would apply to a U.S. branch of a foreign financial company, a
foreign branch or affiliate of a U.S. financial company, or a
transaction conducted internationally. As noted in the NPRM, the
definition of ``financial company'' includes only entities that are
incorporated or organized under Federal or state law, including
subsidiaries. Entities that are not incorporated or organized under
Federal or state law, or branches of entities that are not incorporated
or organized under Federal or state law, are not subject to the Final
Rule's reporting requirements. However, as stated in the NPRM,
transactions conducted outside the United States by covered reporters
are within scope, because their exclusion could allow covered reporters
to avoid reporting by settling a transaction outside the U.S., and
these transactions contain information on cross-border exposures that
are relevant for financial stability monitoring.\41\ Therefore,
transactions conducted by financial companies (as defined in the Final
Rule) that are settled or otherwise take place outside of the United
States as well as transactions settled in currencies other than the
U.S. dollar are included both in the transactions reported to the
Office and in the volumes used to determine the Category 1 and Category
2 thresholds.
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\40\ 88 FR 1154, 1164.
\41\ Id.
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One commenter suggested that the rules should exclude transactions
by non-U.S. sub-advisers under the management of a U.S. adviser as well
as de minimis transactions between Category 2 financial companies
denominated in currencies other than U.S. dollars. This commenter
suggested these transactions be excluded from the collection because
such information is not relevant to regulators' understanding of the
U.S. repo market and de minimis transactions pose little systemic risk
to the United States. Also, they suggested that the burden of reporting
these transactions outweighs the benefit. The Office does not agree
with these reasons. Financial companies can flexibly utilize financing
from sources outside the United States as needed. Excluding
transactions of a non-U.S. sub-adviser under the management of a U.S.
adviser or transactions denominated in other currencies could eliminate
important information about cross-border exposures relevant to
financial stability. Additionally, the practice of structuring
transactions into smaller cash amounts does not remove their relevance
to financial stability analysis. As a result, the Office declines to
exclude these transactions. These transactions should be included both
in the transactions reported to the Office and in the volumes used to
determine Category 1 and Category 2 disclosure thresholds.
III(c) Information Required
Pursuant to Sec. 1610.11(c) of the Final Rule, covered reporters
must submit information on all NCCBR transactions in which the covered
reporter participates. The word ``all'' should be interpreted broadly;
the set of transactions to be included in a covered reporter's
disclosures is wider than that used to determine whether a financial
company is a covered reporter. Transactions should be reported
regardless of whether the covered reporter is a cash lender or cash
borrower, a direct participant, guarantor, or other relevant third
party. Further, covered reporters should report transactions in this
market segment regardless of the tenor, optionality, or the collateral
underlying the transaction. Additionally, covered reporters should
report transactions regardless of the domicile of the other entities
taking part in the transaction or the location in which the transaction
is settled. Additionally, the covered reporter should report all
transactions that occur within the larger organization (including
affiliates and subsidiaries of the covered reporter) to which the
covered reporter participates. Along the same lines, Category 2
reporters should report any transactions that occur with potential or
actual Category 1 reporters.
III(c)(1) Line Items
The Final Rule requires reporting on NCCBR trades, including
detailed reporting about the securities used to collateralize these
trades and contractual details of the underlying repurchase agreements.
As adopted, the required data elements are listed in the table in
section Sec. 1610.11(c) of the Final Rule's
[[Page 37102]]
text. The table is tailored to capture information regarding covered
transactions in a manner that the Office believes largely reflects the
data generated by covered reporters in the ordinary course of business.
This table lists each required element and a brief description of that
element.
While commenters addressed the data elements in varying ways, for
ease of reference, the following discussion follows the order of the
data elements as they appear in the table of data elements in the NPRM.
Additional instructions relating to data submission mechanics and the
formatting of individual data elements will be contained in reporting
instructions published concurrently with the Final Rule.
Cash Lender Name and Cash Borrower Name
One commenter suggested that these elements were unnecessary
because the Legal Entity Identifiers (LEIs) of the cash lender and cash
borrower were to be collected and, because LEIs are unambiguous values,
LEIs should be sufficient to identify the parties to the transaction.
LEIs are not available in every circumstance and the Office has
therefore determined that the cash lender and cash borrower names
should remain as required data elements.
Guarantee
Two commenters requested more guidance on the meaning of this
element and the manner of reporting. Guarantees in the context of this
element are to be understood as having the same meaning as stated above
in section III.b ``Scope of Transactions.'' As proposed in the NPRM,
guarantees must be reported simply with an indicator for whether the
covered reporter issued a guarantee with respect to the transaction.
The Office will provide further clarification on data submission
mechanics in the reporting instructions.
Netting Set
Two commenters asked that this field be dropped from the
collection. As discussed below in this section under ``Risk
Management,'' the Office is not including the netting set data element
in the collection at this time.
Transaction ID
One commenter asked for clarification of the word ``respondent'' in
the data element explanation provided in the NPRM. This term means
``covered reporter'' in this instance, and the Office has made
corresponding changes in the Final Rule.
Trading Platform
One commenter asked if this field would be a free-text field or if
the Office would provide specific values for a covered reporter to
select. It is a free-text field for the name of the trading platform
used to perform/submit the corresponding transaction. The Office will
provide examples in the reporting instructions.
End Date
One commenter asked for clarification on the use of this element in
the cases of open and evergreen repos and made a suggestion about the
ability to distinguish between open and evergreen repos. For the
purposes of this collection, the Office will collect the Minimum
Maturity Date for all transactions. To preserve the granularity between
repos with different optionality structures, the Office will provide a
field for special instructions, notes, or comments that should be used,
among other things, to differentiate between these different
transaction types. Examples and clarifications will be provided in the
reporting instructions.
Cash Lender Internal Identifier and Cash Borrower Internal Identifier
One commenter requested clarification as to whether the cash lender
internal identifier or cash borrower internal identifier should be
reported when the covered reporter itself is the relevant counterparty.
This field should always be reported, including when the covered
reporter is the direct counterparty to the transaction. Covered
reporters are free to develop their own internal identifiers for self-
identification.
Start Leg Amount
One commenter suggested removing this element because some
financial companies do not track this value on a historical basis and
the Office would have this information previously reported by the firm
(and associated to the same transaction identifier reported by the
firm) as long as the firm was a covered reporter as of the inception of
the repo. However, removing this field would mean that it would never
be collected, even for the date the transaction was initiated. On this
basis, the Office deems the suggestion unworkable. The element is
retained in the collection.
Close Leg Amount
Two commenters questioned how to calculate this value for floating-
rate repos. The Office clarifies in the Reporting Instructions that it
does not expect this value to be calculated for floating-rate repos.
The field should still be provided in accordance with the reporting
instructions.
Current Cash Amount
One commenter requested that accrued interest not be included in
daily reporting of this element or that including accrued interest in
this field be optional, with the addition of another field for
reporters to indicate whether accrued interest was included. The
commenter stated that the Office could calculate the accrued interest
data based on the start leg amount and the spread and benchmark for the
applicable transaction identifier. The Office understands that this
element is not solely composed of start leg cash value and accrued
interest and may also contain other adjustments. Moreover, the purpose
of this field is to collect the reporter's assessment of its current
cash amounts without having to infer these adjustments. The Office
therefore does not see the need for a separate data element and
declines to change the reporting of the field.
Rate
One commenter requested confirmation that this field would be
reportable for both fixed- and floating-rate repo transactions and, if
so, whether a firm would report the sum of the benchmark rate and the
spread in this field in the case of a floating-rate transaction. The
Office will clarify this in the reporting instructions.
Floating Rate
One commenter requested clarification as to whether this field was
intended to identify the benchmark used for determining the rate for
the floating-rate transaction and if so, suggested renaming the field.
The Office confirms that the identification of the benchmark name is
the data to be reported and has made clarifying revisions in the Final
Rule.
Securities Identifier Type
One commenter asked if this is a free-text field. It is not. The
Office will enumerate the choices available for this field in the
reporting instructions.
Securities Value at Inception
One commenter suggested removing this element because some
financial companies do not track this value on a historical basis and
the Office would have this information previously reported by the firm
(and associated to the same transaction identifier reported by the
firm) as long as the firm was a covered reporter as of the inception of
the repo. However, removing this field
[[Page 37103]]
would mean that it would never be collected, even for the date the
transaction was initiated. On this basis, the Office deems the
suggestion unworkable. The element is retained in the collection.
Haircut
One commenter suggested removing this element because some
financial companies do not track this value on a historical basis and
that the Office would have this information previously reported by the
firm (and associated with the same transaction identifier reported by
the firm) as long as the firm was a covered reporter as of the
inception of the repo. However, removing this field would mean that it
would never be collected, even for the date the transaction was
initiated. On this basis, the Office deems the suggestion unworkable.
The element is retained in the collection.
As noted above, some commenters addressed data element issues on a
more thematic basis. One commenter requested clarification as to
whether matching unique transaction identifiers (UTIs) with a
counterparty would be necessary for reporting. It is not contemplated
for this collection that matching elements across reporters, including
UTIs, will be necessary.
III(c)(2) Collateral Information
Several commenters stated that the collection of data should be
restricted to transactions that use U.S. Treasuries as the underlying
collateral, due to the operational complexity and burden of reporting
trades backed by other collateral. Two of these commenters incorrectly
asserted that the Office's interest in the proposed collection was
driven solely by stability and liquidity in the U.S. Treasury
securities market and that the operational build-out to cover non-U.S.
dollar-denominated securities, U.S. agency debt, or U.S. corporate debt
would provide questionable insight into overall systemic stability in
U.S. or global financial markets. The collection is intended to fill a
critical gap in regulators' information on the repo market by
collecting data on the NCCBR market segment, in order to provide a
comprehensive view of the last segment for which regulators do not have
a transaction-level data source.\42\ The NPRM specifically contemplated
collateral other than U.S. Treasuries by noting the need to better
understand collateral risk, which has implications for financial
stability, and that the NCCBR market segment generally contains riskier
collateral than other segments because the cleared market segments are
limited to Fedwire-eligible collateral.\43\
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\42\ 88 FR 1154, 1156.
\43\ 88 FR 1154, 1158.
---------------------------------------------------------------------------
As additionally noted in the NPRM, collecting data on collateral
will provide valuable insight into financial stability matters because
vulnerabilities associated with two of the five repo market functions-
monetization of assets and transformation of collateral-allow for the
propagation of shocks from the repo market to the secondary market for
the underlying collateral or for a shock in one of these securities
markets to propagate to the repo market and then potentially spread
into other markets.\44\ The collateral underlying a repurchase
agreement is crucial to assessing the exposures and risk management in
the repo market. Information about securities delivered into repo will
allow the Office to assess common risk exposures across counterparties.
The fields proposed will also allow the Office to assess the extent to
which specific securities are tied to the repo market and therefore the
potential for spillovers from the repo market into the underlying
securities market, with potential effects on liquidity and price
efficiency. The Office continues to believe that understanding paths of
potential spillovers through various collateral classes is critical to
monitoring stability in the repo market.
---------------------------------------------------------------------------
\44\ 88 FR 1154, 1157.
---------------------------------------------------------------------------
One commenter stated that there would be additional complexity of
reporting trades that use other collateral on the basis that these
trades are less standardized. While standardization is not the primary
purpose of this collection, as noted in the NPRM, standardization in
this decentralized market as a result of the Final Rule's reporting
process may also improve the ability to reconcile records between
financial companies in the event of severe market stresses.\45\
---------------------------------------------------------------------------
\45\ 88 FR 1154, 1160.
---------------------------------------------------------------------------
Additionally, the Office believes that the reporting thresholds
established by the Final Rule will restrict the collection to large,
sophisticated financial companies for which the cost of reporting
information on all trades will be relatively minor. Further, as
discussed below, the compliance timelines for both Category 1 and
Category 2 covered reporters have been lengthened in the Final Rule
compared to those proposed in the NPRM, which the Office believes will
allow covered reporters ample time to set up and test for reporting.
Finally, one commenter suggested a staged approach to reporting, in
which the collection is initially limited to trades backed by U.S.
Treasury securities and would provide the Office with a significant
portion of the remaining segment of the repo market for which it
currently does not have information, without imposing unduly burdensome
reporting obligations on market participants. It also asserted that
such an approach would prove less disruptive to the orderly operation
of the repo market and give the Office valuable information regarding
the compliance costs of implementing a repo reporting regime before it
imposes additional reporting obligations. For the same reasons as noted
above, the Office has an interest in collecting data with respect to
all types of collateral, and in light of the anticipated sophistication
of covered reporters and the additional time provided for a newly
qualifying financial company to begin reporting, the Office declines to
adopt a two-stage reporting timeline with respect to collateral type.
For all of the reasons noted above, the Office is not limiting the
collection of data in the Final Rule only to those transactions that
use U.S. Treasuries as the underlying collateral.
III(c)(3) Risk Management
In the NPRM, the Office proposed to collect information on a
covered reporter's risk management practices. The Office sought to
collect information on whether the covered reporter nets counterparty
exposures across asset classes and instruments outside of repo and the
terms on which netting occurs when the covered reporter does not net
counterparty exposures across asset classes and instruments outside of
repo.
The Office received two comments on its proposal to collect data on
netting. One commenter stated that reporting the field as proposed was
not workable because netting is not captured on a trade-by-trade basis
and does not represent an economic term of a trade like the other
proposed fields. It also stated that if the Office intends to review
netting as it relates to capital, other existing rules govern the
collections of that information by federal financial regulators.
The other commenter stated that given the various netting
arrangements that could apply, reporting as proposed would require
financial companies to make subjective and complex interpretations for
each reported position. It also stated that netting could be based on a
written agreement or the specific course of dealing and policies and
procedures of each party. Finally, the commenter requested that the
Office
[[Page 37104]]
provide additional clarity as to the specific types of netting that the
Office intended to cover and how netting should be reported in order to
achieve consistent reporting across covered reporters.
The Office has concluded that while additional information on
netting arrangements, including cross-product margining, would be
useful for financial stability monitoring, the range of netting
practices and documentation, along with the resultant potential
inconsistency in reporting, suggest that other means of gathering such
information might be more effective. Therefore, the Final Rule does not
include this field. However, the financial stability rationale for the
collection of information on netting arrangements and other risk
management practices was not contested by comment letters. Such a
collection may be addressed by the Office in the future.
III(d) Submission Process and Implementation
In its NPRM, the Office stated that it was reviewing options for
the submission process and implementation of the collection and, should
the proposed rules be adopted, may require submission either through
the Office or through a collection agent.\46\
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\46\ 88 FR 1154, 1167).
---------------------------------------------------------------------------
Two commenters suggested that the Office consider using a
collection agent, although they identified different candidates. Based
on the Office's experience with the Ongoing Data Collection of
Centrally Cleared Transactions in the U.S. Repurchase Agreement Market,
the Office has determined it has the ability to efficiently manage the
collection of data under the Final Rule. The Office has developed and
launched a data collection utility and specifies under the Final Rule
that covered reporters are required to submit data directly to the
Office rather than through a collection agent. However, the Office
reserves the option to designate a collection agent in the future.
One commenter requested clarification as to whether, when a firm
reports data for a particular observation date, it should report its
positions as of the close of business on that observation date, whether
a repo that is opened and closed on the same day is reportable, and
whether reporting applies only to U.S. business days. The Office has
considered this issue and made changes to the regulatory text in the
Final Rule to include the definition of a business day. In addition to
transactions that are opened or rolled over, the NPRM was clear that
transactions that open and close on the same day must be reported as
part of that business day's data submission. The Final Rule also adds a
definition of File observation date, and this definition is consistent
with the usage in the NPRM.
One commenter asked whether a covered reporter's reporting
responsibilities under the rules could be delegated to a counterparty
or platform in order to manage reporting costs and provided an
explanation of potential benefits of doing so. The Office distinguishes
between trade-by-trade delegation to a counterparty or trading platform
and delegation of its daily data submission (and any corrections
thereto) to a provider of outsourced processing. The Office
acknowledges that outsourcing certain business processes is an accepted
industry practice for some financial companies, including those that
may be covered reporters under the Final Rule. On the other hand,
delegation that might spread the daily data submission of a covered
reporter across several filings or from day to day among various
entities is unworkable from an operational perspective and could create
risks of errors in reported data. In light of these considerations, the
Office will allow covered reporters to use a third party to submit data
on their behalf, subject to the following constraints:
The covered reporter may delegate a maximum of one third
party at a time for daily file submission and corrections.
The completed file is consistently submitted from a single
source (either the covered reporter or the delegated third party), and
the source may not change without advance notice to the Office.
The covered reporter provides the Office at least 90 days
advance notice of any proposed change to the submitter of the daily
file.
Adherence to the above-listed constraints will allow covered
reporters to use third parties to meet operational needs while
furthering data quality. In any case, the covered reporter will remain
fully responsible for the data submission and compliance with the Final
Rule; any issues will be addressed directly between the covered
reporter and the Office.
Under the NPRM, covered reporters were to submit the required data
for each business day by 11 a.m. Eastern Time on the following business
day. Several commenters stated that this reporting deadline should be
extended for reasons of data quality and burden. One of these
commenters also stated that financial companies also should have the
ability to report between T+1 and T+3 because for some financial
companies the positions would have matured off their system after T+1,
and it would be difficult to determine what was outstanding three days
before the filing deadline. Two commenters mentioned cross-border
transactions as difficulties to T+1 reporting, with one commenter
additionally asserting that a T+1 reporting requirement could
discourage covered reporters from entering into NCCBR transactions,
particularly with respect to repo transactions with non-U.S.
counterparties.
Taking concerns regarding burdens and data quality and availability
into account, the Office believes that 11 a.m. Eastern Time T+1 is an
appropriate reporting deadline. Non-U.S. trades are likely to take
place earlier in the 24-hour cycle than U.S. transactions, because most
non-U.S. markets close earlier in the 24-hour cycle than U.S. markets,
so for any given day a transaction on a foreign market already has more
time for processing. Since this deadline occurs after most
international financial exchanges have closed for the evening, the
Office does not believe that this reporting cadence will materially
affect choice of venue or otherwise distort the market.
Additionally, following the same logic out of consideration of the
operating hours of international financial exchanges, the Final Rule
defines ``business day'' as the period beginning at 6 p.m. Eastern Time
on any day that the Fedwire Funds Service is open to 6 p.m. Eastern
Time on the next day that the Fedwire Funds Service is open.\47\ For
example, the business day of January 24, 2024, began at 6 p.m. Eastern
Time on January 23, 2024, and ended at 6 p.m. Eastern Time on January
24, 2024.
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\47\ Refer to the schedule published on the FRBservices.org
website, currently available at https://www.frbservices.org/resources/financial-services/wires/operating-hours.html, but subject
to change.
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One commenter additionally noted the need for some covered
reporters to build reporting systems to comply with the rules and
therefore recommended T+3 should be used. The Office rejects this
reasoning because a T+1 system should generally be similar in
implementation to a T+3 system. Further, another commenter noted that
existing systems for some covered reporters would be burdened by
waiting until T+3 to report.
Overall, the Office has concluded that the T+1 proposal of the NPRM
to be appropriate for both covered reporters
[[Page 37105]]
and the Office. Allowing transactions to be submitted across multiple
days would affect the ability of the Office to manage submissions,
resubmissions due to errors, and overall data quality. This conclusion
is based in part on the Office's experience with the cleared repo data
collection, which has been that even a relatively high-volume system--
one with more transactions per day than any one covered reporter under
the Final Rule will have--works efficiently at a T+1 cadence.
The NPRM stated that if the proposal were to be adopted, the Final
Rule would go into effect 60 days after its publication in the Federal
Register and that covered reporters would be required to comply with
the Final Rule 90 days after its effective date. The Office believed
this implementation period would provide adequate time for covered
reporters to comply with the proposed requirements but sought public
comment on this matter.
Five commenters responded to the Office's questions related to the
implementation timeline. Each requested more time to allow for building
infrastructure and resources to meet compliance and reporting
requirements. Several provided examples of activities that would need
to be completed before compliance, such as changes to user interfaces,
databases, and other existing systems, as well as implementing systems
for processing rejections, resubmissions, and modifications and
automating the process for generating and reporting the daily file.
Two of these commenters stated that the Office should allow 18
months for covered entities to begin reporting, in part due to the need
to calculate the reporting thresholds. Both stated that the Office
should consider a tiered or incremental approach for reporting, with
one citing the European Securities and Markets Authority's (ESMA's)
Securities Financing Transactions Regulation (SFTR) as an example. The
other commenter recommended that the Office start with imposing a
reporting obligation on Category 1 covered reporters, suggesting that
after receiving their data for a period of time, the Office may learn
that it has sufficient visibility into the repo market such that
Category 2 entities would no longer need to report. Two of these
commenters stated that the Office should allow 12 months for covered
entities to begin reporting. Two commenters also pointed out that a
longer implementation timeline was needed because the rules would add
to several other global regulatory changes underway that will affect
financial companies' reporting obligations. Several commenters tied
their requests for additional implementation time to the date the
Office finalizes technical specifications or reporting instructions
that cover matters like report formats and connectivity protocols.
One commenter asserted as another reason for an extended reporting
implementation timeline that the Office's collection of centrally
cleared repo transactions allowed for a longer implementation timeframe
while covering only a single reporting entity, as opposed to the
multiple reporting parties expected under the Office's proposed
collection of NCCBR transactions. However, the Office's centrally
cleared repo collection is not an analogous basis for comparison. The
Office's earlier collection required more than 70 data elements across
three separate data file submissions. In comparison, this collection
requires only a single data file to be submitted with 32 data elements.
Two commenters noted that the NPRM did not specify whether the
Office or a collection agent would receive the data submissions. One
asserted that once the collection agent is specified, the Office should
issue technical details for notice and comment to maximize efficiency
and consistency. The Office has previously engaged on these topics with
market participants, regulators responsible for financial data
collections, and industry associations through its NCCBR data
collection and outreach pilot of 2022.\48\ It is with this knowledge
that the Office's Technical Guidance, including such matters as data
submission mechanics and formatting, have been developed and are being
published in concert with the Final Rule at https://www.financialresearch.gov/data/non-centrally-cleared-bilateral-repo-data/. The Office does not intend to solicit additional public input on
its Reporting Instructions nor its Technical Guidance at this time.
These documents, along with the Final Rule, confirm that covered
reporters will be required to submit their data directly to the Office.
Additionally, the Technical Guidance will provide information on how to
transmit data to the Office in the manner described in the Reporting
Instructions.
---------------------------------------------------------------------------
\48\ The OFR secured the voluntary participation of nine dealers
for its pilot data collection. These dealers include primary dealers
and nonprimary dealers, bank affiliated and nonbank affiliated
dealers, and both purely domestic dealers and dealers that are
affiliates of foreign institutions. Hempel, Samuel J., R. Jay Khan,
Robert Mann, and Mark Paddrik. 2022. The OFR Blog (blog). ``OFR's
Pilot Provides Unique Window into the Non-centrally Cleared
Bilateral Repo Market.'' December 5, 2022. https://www.financialresearch.gov/the-ofr-blog/2022/12/05/fr-sheds-light-on-dark-corner-of-the-repo-market/.
---------------------------------------------------------------------------
Two commenters discussed the need for testing, with one requesting
that the Office provide details regarding testing facilities and
processes. This commenter further recommended that one month be
allocated for testing submissions. The Office has considered this
comment and will accept covered reporter data as of the Final Rule's
effective date. The Office agrees that testing is important and expects
that most covered reporters will use the time between the effective
date and compliance date to submit data on a test basis. The Office
encourages all covered reporters to test submissions as early as
possible but at least 90 days before their compliance deadline.
The Office acknowledges that covered entities may need to establish
or adapt their infrastructure to comply with their reporting
obligations. However, as stated in the NPRM, the collection of these
data is key to the Council's effective identification and monitoring of
emerging threats to the stability of the U.S. financial system and any
significant delay to reporting would hinder such efforts. To strike a
balance in addressing these competing concerns, the Office is extending
the amount of time that covered reporters have to comply with the Final
Rule. The timeline has been extended in the Final Rule for Category 1
covered reporters by approximately 66%, from the proposed 90 days after
the effective date to 150 days after the effective date, and for
Category 2 covered reporters by 200%, from the proposed 90 days after
the effective date to 270 days after the effective date. The Office
believes that by extending the overall implementation timeline, as well
as establishing staggered compliance dates, with an additional 120 days
for Category 2 covered reporters compared to Category 1 covered
reporters, it has appropriately addressed the identified concerns. The
effective date of the rule remains as proposed at 60 days after the
Final Rule is published.
[[Page 37106]]
Table 1--Timeline for Financial Companies That Meet Reporting Thresholds as of the Effective Date of the Final
Rule
----------------------------------------------------------------------------------------------------------------
Publication date Effective date Compliance date
----------------------------------------------------------------------------------------------------------------
Category 1 covered reporter......... T T+60 days.............. Effective Date + 150
days.
Category 2 covered reporter......... T T+60 days.............. Effective Date + 270
days.
----------------------------------------------------------------------------------------------------------------
One commenter requested clarification of the basis for determining
whether financial companies meet reporting thresholds based on various
compliance date scenarios. Consistent with the NPRM, the reporting
threshold is met when a financial company's average daily total
outstanding commitments to borrow cash and extend guarantees through
NCCBR contracts over all business days during the prior calendar
quarter is at least $10 billion.\49\
---------------------------------------------------------------------------
\49\ 88 FR 1154, 1162.
---------------------------------------------------------------------------
One commenter had questions about implementation time for financial
companies that begin to meet reporting thresholds after the Final
Rule's effective date. The NPRM stated that any financial company 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 business day of the third full calendar quarter following
the calendar quarter when such financial company becomes a covered
reporter.\50\ In light of the revised timeline for financial companies
that qualify as covered reporters as of the Final Rule's effective
date, and to improve consistency and clarity, the Office is also
revising the timeline for financial companies that become covered
reporters after the Final Rule's effective date. For a Category 1
company that becomes a covered reporter after the effective date, the
compliance date has been revised to 150 days after the last day of the
calendar quarter when the company becomes a covered reporter. For a
Category 2 company that becomes a covered reporter after the Final
Rule's effective date, the timeline has been revised to 270 days after
the last day of the calendar quarter when the company becomes a covered
reporter.
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\50\ 88 FR 1154, 1170.
---------------------------------------------------------------------------
The Final Rule enumerates all compliance timelines in terms of
days, and not quarters, to eliminate any confusion when interpreting
the compliance timelines discussed above. Where the NPRM previously
instructed financial companies that become covered reporters after the
Final Rule's effective date to comply on the first business day of a
quarter, the Final Rules will now articulate a compliance date that is
a set number of days after the last day of the calendar quarter when
such financial company becomes a covered reporter. The following table
illustrates these timelines.
Table 2--Timeline for Financial Companies That Meet Reporting Thresholds After the Effective Date of the Final
Rule
----------------------------------------------------------------------------------------------------------------
Last day of threshold quarter * Compliance date
----------------------------------------------------------------------------------------------------------------
Category 1 covered reporter.......... T T+150 days.
Category 2 covered reporter.......... T T+270 days.
----------------------------------------------------------------------------------------------------------------
* The threshold quarter is the calendar quarter when the financial company first exceeds the thresholds stated
in 12 CFR 1610.11(b)(2).
One commenter requested clarification on what happens when a
covered reporter falls below the reporting thresholds and subsequently
meets the thresholds again. As the NPRM stated, a covered reporter
whose volume falls below the $10 billion threshold for at least four
consecutive calendar quarters would have its reporting obligations
cease.\51\ However, if that same financial company once again meets the
reporting threshold, it is subject to the same requirements as any
financial company that becomes a covered reporter after the Final
Rule's effective date, as illustrated in Figure 2.
---------------------------------------------------------------------------
\51\ 88 FR 1154, 1163.
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As contemplated in the NPRM, the Office is publishing concurrently
with the Final Rule specific reporting instructions and technical
guidance on the Office's website at https://www.financialresearch.gov/data/non-centrally-cleared-bilateral-repo-data/ regarding matters such
as data submission mechanics and formatting. The Office may update
these materials from time to time and will publish any updates on its
website.
VI. Administrative Law Matters
VI(a) Paperwork Reduction Act
The information collection contained in the Final Rule has been
reviewed and approved by the Office of Management and Budget (``OMB'')
under OMB Control No. 1505-0279. In accordance with the requirements of
the Paperwork Reduction Act (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.
Commenters on the proposed rules generally acknowledged the need
for the Office to collect certain information on repo transactions in
support of the work of the Council, its member agencies, and the Office
in connection with identifying and monitoring risks to financial
stability.
Commenters also requested various modifications to, or relief from,
aspects of the proposed rules that they stated would entail burdens
that outweighed the benefits to the Office. This included
recommendations from expected covered reporters for a phased
implementation process over a longer period of time than the Office had
proposed. However, none of the commenters provided comments, empirical
data, estimates of costs or benefits, or other analyses directly
addressing matters pertaining to the PRA discussion.
The Office's ability to collect non-centrally cleared repo data
through this 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 of the Office
[[Page 37107]]
in consultation with the Council.\52\ In a 2022 statement on nonbank
financial intermediation, the Council supported a recommendation made
by the Council's Hedge Fund Working Group that the Office consider ways
to collect NCCBR data \53\ and, in July 2022 and February 2024, the
Office consulted with the Council on efforts to collect NCCBR data.\54\
---------------------------------------------------------------------------
\52\ 12 U.S.C. 5344(b)(1)(B)(iii).
\53\ Financial Stability Oversight Council. ``Statement on
Nonbank Financial Intermediation.'' Press Release, February 4, 2022:
FSOC. https://home.treasury.gov/news/press-releases/jy0587.
(accessed April 17, 2024)
\54\ Financial Stability Oversight Council. Meeting minutes.
FSOC, July 28, 2022, p. 7. https://home.treasury.gov/system/files/256/FSOC_20220728_Minutes.pdf.
---------------------------------------------------------------------------
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.\55\ In particular, the purposes and duties of the Office
include supporting the Council in fulfilling its purposes and duties,
and supporting Council member agencies, by collecting data on behalf of
the Council and providing such data to the Council and Council member
agencies, and standardizing the types and formats of data reported and
collected.\56\ The Office must consult with the Chairperson of the
Council prior to the promulgation of any rules under section 153 \57\--
these consultations occurred both before and after the publication of
the NPRM.
---------------------------------------------------------------------------
\55\ 12 U.S.C. 5343(a), (c)(1).
\56\ 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).
\57\ 12 U.S.C. 5343(c)(1).
---------------------------------------------------------------------------
As noted above, commenters generally did not provide comments,
empirical data, or other analyses directly addressing the Office's
estimates in the PRA discussion. As outlined in detail above, the Final
Rule incorporates changes from the proposed rules to provide for a
phased implementation process over a longer period of time than the
Office had proposed. However, this change does not impact the scope of
financial companies subject to the requirements of the Final Rule, nor
the estimated annual burden on a covered reporter once the Final Rule
is fully implemented.
As a result, the Office's estimate of an annual burden of 756 hours
per covered reporter remains unchanged. This figure is arrived at by
estimating the daily reporting time to be approximately 3 hours for
each submission 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 for purposes of this Final Rule, the
Office used data from the May 2022 Bureau of Labor Statistics
Occupational Employment Statistics for credit intermediation and
related activities (NAICS 522000). For hourly compensation, a figure of
$91 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
44.5 percent to cover subsequent wage gains and non-wage benefits,
which yields an estimate of $131 per hour.
In addition, and as described in the NPRM, each covered reporter
must also obtain and maintain an LEI. Those costs have reduced since
the publication of the NPRM, with the initial application now costing
$50 and the annual renewal costing $40.
Using these assumptions, the Office estimates the recurring total
estimated annual cost to a covered reporter is $99,076.
VI(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.\58\ 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.\59\ In accordance with section
3(a) of the RFA, the Office is certifying that the Final Rule will not
have a significant economic impact on a substantial number of small
entities.
---------------------------------------------------------------------------
\58\ 5 U.S.C. 601 et seq.
\59\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
As discussed above, this collection will apply to certain brokers,
dealers, and other financial companies whose average daily outstanding
commitments to borrow cash and extend guarantees in NCCBR with certain
counterparties over all business days during the prior calendar quarter
is at least $10 billion.
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 $15 million in
assets up to $850 million in assets.\60\ For purposes of the RFA,
entities that are banks are considered small entities if their assets
are less than or equal to $850 million. The level of the activity-based
threshold under the Final Rule ensures that any respondent will be well
beyond these small entity definitions.
---------------------------------------------------------------------------
\60\ 13 CFR 121.201.
---------------------------------------------------------------------------
Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(b), it is
hereby certified that this final rule will not have a significant
economic impact on a substantial number of small entities.
VI(c) Congressional Review Act
This rule is not a major rule pursuant to the Congressional Review
Act (CRA), 5 U.S.C. 801 et seq.
List of Subjects in 12 CFR Part 1610
Banks, Banking, Confidential business information, Securities.
For the reasons stated in the preamble, the Office of Financial
Research amends 12 CFR part 1610 as follows:
PART 1610--REGULATORY DATA COLLECTIONS
0
1. The authority citation for part 1610 continues to read as follows:
Authority: 12 U.S.C. 5343 and 5344.
0
2. Add Sec. 1610.11 to read as follows:
Sec. 1610.11 Non-centrally Cleared Bilateral Repurchase Agreement
Data.
(a) Definitions. The terms used in this section have the following
meanings:
Business day is the period beginning at 6 p.m. Eastern Time on any
day that the Fedwire Funds Service is open to 6 p.m. Eastern Time on
the next day that the Fedwire Funds Service is open.
Covered reporter means any financial company that meets the
criteria set forth in paragraph (b)(2) of this section; provided,
however, that any covered reporter shall cease to be a covered reporter
only if it does not meet the dollar thresholds specified in paragraph
(b)(2) of this section for at least four consecutive calendar quarters.
File observation date means the date on which any business day
ends.
Financial company has the same meaning as in 12 U.S.C. 5341(2).
[[Page 37108]]
Government securities broker means any financial company registered
as a government securities broker under the Securities Exchange Act of
1934.
Government securities dealer means any financial company registered
as a government securities dealer under the Securities Exchange Act of
1934.
Investment adviser means any financial company registered as an
investment adviser with the Securities and Exchange Commission under
the Investment Advisers Act of 1940.
Non-centrally cleared bilateral repurchase agreement transaction
means an agreement of one party to sell securities to a second party in
exchange for the receipt of cash, and the simultaneous agreement of the
former party to later reacquire the same securities (or any
subsequently substituted securities) from that same second party in
exchange for the payment of cash; or an agreement of a party to acquire
securities from a second party 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 party in exchange for the receipt of cash. The agreement does
not involve a tri-party custodian and is not cleared with a central
counterparty. This definition includes, but is not limited to,
transactions that are executed under a Master Repurchase Agreement
(MRA) or Global Master Repurchase Agreement (GMRA), or which are agreed
to by the parties as subject to the provisions of 11 U.S.C. 559.
Notwithstanding the above, transactions conducted under a Securities
Lending Agreement (SLA) or a Master Securities Lending Agreement (MSLA)
are not considered repurchase agreements, nor are repurchase agreements
arising from either participation in a commercial mortgage loan or the
initial securitization of a residential mortgage loan.
Outstanding commitment means the amount of financial obligations
entered into pursuant to any repurchase agreement that opens on any
business day or is outstanding as of the end of any business day,
including transactions which both opened and closed on the same
business day. These financial obligations include all of those that
exist prior to netting.
Securities broker means any financial company registered as a
broker with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
Securities dealer means any financial company registered as a
dealer with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
(b) Purpose and scope--(1) Purpose. The purpose of this data
collection is to require the reporting of certain information to the
Office about non-centrally cleared bilateral repurchase agreement
transactions. The information will be used by the Office to fulfill its
responsibilities under Title I of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, including support of the Council and Council
member agencies by facilitating financial stability monitoring and
research consistent with support of the Council and its member
agencies.
(2) Scope of application. Reporting under this section is required
by any financial company that participates in a non-centrally cleared
bilateral repurchase agreement transaction and that is:
(i) A securities broker, securities dealer, government securities
broker, or government securities dealer whose average daily outstanding
commitments to borrow cash and extend guarantees in non-centrally
cleared bilateral repurchase agreement transactions with counterparties
over all business days during the prior calendar quarter is at least
$10 billion, or
(ii) Any other financial company with over $1 billion in assets or
assets under management whose average daily outstanding commitments to
borrow cash and extend guarantees in non-centrally cleared bilateral
repurchase agreement transactions, including commitments of all funds
for which the company serves as an investment adviser, with
counterparties that are not securities brokers, securities dealers,
government securities brokers, or government securities dealers over
all business days during the prior calendar quarter is at least $10
billion.
(c) Data required. (1) Covered reporters shall report trade and
collateral information on all non-centrally cleared bilateral
repurchase agreement transactions, subject to paragraph (c)(2) of this
section, in accordance with the prescribed reporting format in this
section.
(2) Covered reporters shall only report trade and collateral
information with respect to any non-centrally cleared bilateral
repurchase agreement transaction which opens on, or is outstanding at
any time during the business day, including transactions which both
opened and closed during the business day.
(3) Covered reporters shall submit the following data elements for
all transactions:
Table 1 to Paragraph (c)(3)
----------------------------------------------------------------------------------------------------------------
Data element Explanation
----------------------------------------------------------------------------------------------------------------
File observation date....................................... The date on which the business day ends.
Covered reporter LEI........................................ The Legal Entity Identifier of the covered
reporter.
Cash lender LEI............................................. The Legal Entity Identifier of the cash lender.
Cash lender name............................................ The legal name of the cash lender.
Cash borrower name.......................................... The legal name of the cash borrower.
Cash borrower LEI........................................... The Legal Entity Identifier of the cash borrower.
Guarantee................................................... Indicator for whether the covered reporter issued
a guarantee with respect to the transaction.
Transaction ID.............................................. The covered reporter-generated unique transaction
identifier in an alphanumeric string format.
Unique transaction ID....................................... If available, the Unique Transaction Identifier
(UTI).
Trading platform............................................ For transactions arranged using an outside
vendor's platform, the provider of the platform.
Trade timestamp............................................. The timestamp that the trade became an obligation
of the covered reporter or the covered reporter's
affiliate or subsidiary.
Start date.................................................. The start date of the repo.
End date.................................................... The date the repo matures.
Minimum maturity date....................................... The earliest possible date on which the
transaction could end in accordance with its
contractual terms (taking into account
optionality).
Cash lender internal identifier............................. The internal identifier assigned to the cash
lender by the covered reporter, if the covered
reporter is not the cash lender.
Cash borrower internal identifier........................... The internal identifier assigned to the cash
borrower by the covered reporter, if the covered
reporter is not the cash borrower.
[[Page 37109]]
Start leg amount............................................ The amount of cash transferred to the cash
borrower on the open leg of the transaction at
the inception of the transaction.
Close leg amount............................................ The amount of cash to be transferred by the cash
borrower on the end date of the transaction.
Current cash amount......................................... The amount of cash to be transferred by the cash
borrower, inclusive of principal, accrued
interest and other adjustments, as of the end of
the business day.
Start leg currency.......................................... The currency which is used in the Start leg amount
field.
Rate........................................................ The rate of interest paid by the cash borrower on
the transaction, expressed as an annual
percentage rate on an actual/360-day basis.
Floating rate benchmark..................................... The name of the benchmark interest rate upon which
the transaction is based.
Floating rate reset frequency............................... The time period, in calendar days, describing the
frequency of the floating rate resets.
Spread...................................................... The contractual spread over (or below) the
benchmark rate referenced in the repurchase
agreement.
Securities identifier type.................................. The identifier type for the securities transferred
between cash borrower and cash lender.
Security identifier......................................... The identifier of securities transferred between
the cash borrower and the cash lender in the
repo.
Securities quantity......................................... The number of units (e.g., shares, bonds, bills,
notes) transferred to the cash lender as of the
end of the business day.
Securities value............................................ The market value of the transferred securities as
of the end of the business day, inclusive of
accrued interest.
Securities value at inception............................... The market value of the transferred securities at
the inception of the transaction, inclusive of
accrued interest.
Securities value currency................................... The currency used in the Securities value and
Securities value at inception fields.
Haircut..................................................... The difference between the market value of the
transferred securities and the purchase price
paid at the inception of the transaction.
Special instructions, notes, or comments.................... The covered reporter may characterize any detail
of the transaction with special instructions,
notes, or comments.
----------------------------------------------------------------------------------------------------------------
(d) Reporting process. Covered reporters shall submit the required
data for each business day by 11 a.m. Eastern Time on the following
business day. The Office may either collect the data itself or
designate a collection agent for that purpose.
(e) Compliance date. (1) Any financial company that meets the
criteria set forth in paragraph (b)(2)(i) of this section as of the
effective date of this section shall comply with the reporting
requirements pursuant to this section 150 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.
(2) Any financial company that meets the criteria set forth in
paragraph (b)(2)(ii) of this section as of the effective date of this
section shall comply with the reporting requirements pursuant to this
section 270 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.
(3) Any financial company not described in subparagraph (e)(1) or
(2) of this section that meets the criteria set forth in paragraph
(b)(2)(i) of this section after the effective date of this section
shall comply with the reporting requirements pursuant to this section
150 days after the last day of the calendar quarter in which such
financial company becomes a covered reporter.
(4) Any financial company not described in subparagraph (e)(1) or
(2) of this section that meets the criteria set forth in paragraph
(b)(2)(ii) of this section after the effective date of this section
shall comply with the reporting requirements pursuant to this section
270 days after the last day of the calendar quarter in which such
financial company becomes a covered reporter.
James D. Martin,
Acting Director.
[FR Doc. 2024-08999 Filed 5-3-24; 8:45 am]
BILLING CODE 4810-AK-P-P