By Sheila Mullan

NEW YORK (MNI) – The New York Federal Reserve Tuesday said it is
inviting Government Sponsored Entities (GSEs) to be reverse repurchase
transaction counterparties. It has set a June 3 deadline for the GSEs to
apply, which follows primary dealers and various money funds who also
are qualified to do such RRPs.

It set forth the following criteria for GSEs to do RRPs
with the New York Fed:

–In any such RRP, FRBNY will sell securities held in the System
Open Market Account (SOMA) to counterparties subject to an agreement to
repurchase them at some future date. FRBNY expects to use the existing
industry tri-party infrastructure to undertake any such RRP. In
addition, as with current operations, FRBNY intends to use an auction
format for awarding transactions to counterparties.1

–Upon submission of an application and acceptance of that
application by FRBNY, an applicant will be added to a public list,
maintained on FRBNY’s website, of eligible RRP counterparties. Inclusion
on such list simply means that the entity is eligible to engage in RRP
with FRBNY. It does not mean that the entity is eligible for any other
program or transactional relationship with FRBNY. It does not in any way
constitute a public endorsement of that entity by FRBNY, nor should such
be viewed as a replacement for prudent counterparty risk management and
due diligence. FRBNY reserves the right to amend its list of RRP
counterparties at any time and for any reason in its sole discretion.
FRBNY reserves the right to disclose information regarding the RRP
counterparties.

Details of transactions undertaken with RRP counterparties will be
disclosed in accordance with the requirements of Section 1103 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act. That
legislation requires the disclosure of certain information regarding
open market transactions between a Federal Reserve Bank and
nongovernmental entity that have been authorized under specified
provisions of Section 14 of the Federal Reserve Act, which would include
RRP.

-I. Initial Eligibility2

To be accepted as a RRP counterparty, an applicant must:

A. be a government-sponsored enterprise chartered by the U.S.
Congress;

B. be a consistent cash investor in the tri-party repo market (in
particular, in transactions collateralized by U.S. government debt,
agency debt, and agency MBS securities) with an average daily
outstanding amount of RRP transactions of at least $15 billion for the
past three months;

C. be able to confirm and arrange settlement of a significant volume of
transactions with FRBNY, and
D. be able to satisfy the following transaction requirements: (a)execute
RRP with securities margined at 100% (i.e. the value of the securities
provided by FRBNY will equal the funds provided by the counterparty),
(b) execute RRP with terms of up to 65 business days, (c) submit minimum
bids of $1 billion or greater, (d) execute RRP for next day settlement,
and (e) execute the requisite RRP documentation including FRBNY’s Master
Repurchase Agreement, tri-party custody documentation and other
documentation, as applicable.
–

In addition to the foregoing, before being accepted as a RRP
counterparty, an applicant must satisfy an FRBNY counterparty review.

II. Continued Eligibility

FRBNY may remove an entity from the RRP counterparty list, or
otherwise cease to enter RRP with such counterparty, for any reason
including if such counterparty:

A. no longer satisfies any of the eligibility criteria listed in
Section I;

B. fails to provide FRBNY, on a timely basis, with any information
that FRBNY deems necessary to determine that the counterparty continues
to satisfy the eligibility criteria;

C. becomes subject to regulatory or legal proceedings that, in the
sole judgment of FRBNY, unfavorably impacts the counterparty
relationship;

D. poses, in FRBNY’s sole judgment, undue risks to the integrity,
reputation, or assets of FRBNY; or

E. does not, in FRBNY’s sole judgment, meaningfully participate in
RRP transactions with FRBNY over a period of time.

___________________________

1Each auction will be a “Multiple Price Auction’, unless “Single
Price Auction” is indicated in the auction announcement. In addition, as
with current RRP operations, FRBNY may, in its sole discretion, cap or
limit any counterparty’s awards in a particular auction or on an
outstanding RRP basis, exclude a counterparty from any particular
auction, and/or reject, in whole or in part, any counterparty’s bids.

2 The eligibility criteria for the RRP program are established by
FRBNY and may be changed in its sole discretion. Final determination of
whether an applicant is eligible to participate in the RRP program will
be made by FRBNY in its sole discretion.

–By Sheila Mullan, New York, 212-669-6432, email: smullan@marketnews.com

** Market News International New York Newsroom: 212-669-6430 **

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