Operating Policy
Effective Date for Treatment of Treasury Floating Rate Notes in SOMA Operations
May 20, 2014

On January 13, 2014, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York announced its intention to treat Treasury floating rate notes (FRNs) in a similar manner to other Treasury securities for purposes of collateral in securities lending and repurchase agreement (RP) operations, availability in securities lending and reverse RPs, and reinvestment of proceeds received from maturing Treasury security holdings. 

Effective May 21, 2014, the Desk will begin to accept Treasury FRNs as collateral in securities lending and RP operations. Treasury FRNs will be subject to the same terms and conditions that are applied to all other Treasury securities pledged as collateral. 

Based on the Federal Open Market Committee’s directive that the Desk roll over maturing Treasury securities at auction, the Desk anticipates that the first reinvestment into FRNs will occur on July 31st. When System Open Market Account (SOMA) holdings of Treasury notes, bonds, Treasury Inflation-Protected Securities (TIPS), and FRNs mature and require reinvestment, the total maturing proceeds will be reinvested across all newly-issued Treasury notes, bonds, TIPS, and FRNs in proportion to the amounts being issued on the maturity date, similar to the existing practice. 

Once held by the SOMA, FRNs will be available to be borrowed in the daily securities lending program and may be pledged in reverse RP operations, and will be subject to the same terms and conditions that are applied to all other Treasury securities.