WASHINGTON (MNI) – The following was issued by the New York Federal
Reserve Bank Wednesday:

Earlier this year, the Tri-Party Repo Infrastructure Reform Task
Force issued its final report describing the status of industry efforts
to reform the tri-party repo market. The Task Force indicated that
additional time would be needed to reduce market reliance on intraday
credit extensions by clearing banks to broker-dealers. Following the
publication of the Task Forces final report, the Federal Reserve Bank
of New York announced that the Federal Reserve would intensify its
supervisory oversight of key tri-party market participants efforts to
implement the Task Force recommendations in a timely fashion.

Accordingly, the Federal Reserve expects market participants it
supervises to reduce reliance on intraday credit and make risk
management practices more resilient to a stress event in the tri-party
repo market. In particular:

* All participants are expected to provide for more timely and
accurate trade confirmations. While both clearing banks have
implemented a three-way trade confirmation process as part of their 2011
reform efforts, many market participants continue to send late or
inaccurate confirmations. Improving these practices is necessary to
support a sharp reduction in intraday credit usage.

– Supervisors will measure progress on the timely confirmation
based on the value of trades.

* Clearing banks must introduce changes to their technology,
policies and procedures in order to achieve a more resilient
infrastructure for the tri-party market.

* Broker-dealers and cash investors affiliated with bank holding
companies and foreign banking organizations are expected to modify their
business practices and processes soon in order to adapt effectively to
the coming infrastructure changes.

– Broker-dealers are expected to reduce their reliance on
short-term tri-party repo financing, particularly for less liquid
assets, to achieve the necessary reductions in the usage of intraday
clearing bank credit.

– Cash investors are expected to make their credit risk and
collateral management practices more robust to stress events.

Both the clearing banks and the largest broker-dealer affiliates of
bank holding companies have been asked to submit execution plans and
timelines. The clearing banks have already submitted their plans; the
largest broker-dealer affiliates of bank holding companies are now in
the process of drafting plans that reflect how they will adapt to their
clearing banks plans. The collective set of plans will be evaluated by
supervisors this fall.

Over the course of the next several months, the Federal Reserve,
working together with other regulators, will continue to closely monitor
the actions of market participants and use all supervisory tools at its
disposal to encourage constructive and timely action to reduce sources
of instability in the tri-party market.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MK$$$$,MN$RP$]