Last modified: January 10, 2006

Program Terms and Conditions ››

How are dealer limits calculated?
Currently, dealers may have a maximum of 20 percent of the theoretical available to borrow per issue with a cap of $500 million par, and $3.0 billion total par in outstanding loans at any one time. Loans that have not been returned prior to the noon auction reduce commensurately the par amount the dealer is eligible to borrow. Good delivery on outstanding loans must be made prior to the auction time in order to free up borrowing capacity to the dealer.

As an example, if a dealer borrows $100 million in an issue of which SOMA holds $1.0 billion and makes $650 million available for borrowing, and the dealer has the $100 million loan outstanding at the time of the next auction, the dealer is only eligible to borrow $30 million more of that issue (20 percent of $650 million minus the $100 million outstanding), assuming $650 million is once again the theoretical available amount to borrow. The dealer will also only be eligible to borrow $2.9 billion more in total. However, if good delivery on the $100 million outstanding loan is made to the FRBNY prior to the noon auction, the dealer is eligible to borrow the full 20 percent of the amount available in the issue, in this case $130 million, and $3.0 billion overall.

In the case where SOMA owns a much larger amount of an issue, dealer borrowing per issue is capped at $500 million. For example, if SOMA holds $3.0 billion in an issue, each dealer would be eligible to borrow $500 million in the issue even though 20 percent of $3.0 billion is $600 million. As before, the dealer would only be eligible to borrow $3.0 billion in total.

Partial returns of outstanding loans are permitted at the discretion of the FRBNY, but the portion of outstanding loans that have not been returned prior to the noon auction reduce commensurately the par amount the dealer is eligible to borrow. The FRBNY is not responsible for deliveries on outstanding loans that are incomplete for any reason.

As an example, if a dealer borrows $100 million in an issue of which SOMA holds $1.0 billion and makes $650 available for borrowing, and the dealer has the $100 million loan outstanding at the time of the next auction, the dealer is only eligible to borrow $30 million more of that issue (20 percent of $650 million minus the $100 million outstanding), assuming $650 million is once again the theoretical available amount to borrow. The dealer will also only be eligible to borrow $2.9 billion more in total. If the dealer only makes good delivery on $50 million of the $100 million outstanding loan to the FRBNY prior to the noon auction, the dealer is then eligible to borrow $80 million of that issue and $2.95 billion overall.

What is the maximum amount a firm can bid for a single issue?
For each issue, dealers may bid for a maximum of 20 percent of the theoretical available to borrow with a cap of $500 million. If two bids totaling more than these limits are submitted for a single issue, the bid with the higher bid rate will be awarded prior to the bid with the lower rate, with total awards not exceeding 20 percent of the theoretical available to borrow or $500 million.

For example, for an issue where SOMA holds $1.0 billion and $650 million is available to dealers to borrow, each dealer may bid for $130 million. If a dealer submits two bids on this issue, one for $100 million at a bid rate of 1.10 and one for $50 million at 1.30, the $50 million bid will be awarded in full, leaving $80 million of the $100 million bid to be awarded at the rate of 1.10. If the dealer has loans outstanding, the amount that the dealer is eligible to borrow is pared commensurate with the par amount of outstanding loans.

For example, if SOMA owns $1.0 billion of an issue, $650 million will be available to lend each day. However, if $500 million of the issue is out on loan and dealers failed to return the issue by noon, SOMA will hold only $500 million of the issue in custody at the time of auction. As such, the remaining $500 million of the issue will be available at auction.

SOMA holdings are provided to the primary dealers via FedTrade daily and published on the FRBNY external web site once a week to provide a reasonable approximation of the SOMA holdings on any given day. In addition, Federal Reserve primary market purchases are included in the Treasury Auction Results announcements released after each Treasury auction. SOMA holdings may vary from these published amounts, however, as a consequence of System operations such as outright transactions. Current SOMA holdings can be obtained by contacting FRBNY Public Information.

As would be expected, securities held as collateral in repurchase or securities lending operations are not available for lending.

Dealers also must notify the FRBNY if they are unable to deliver the pledged Treasury collateral against a loan on the loan date. If a firm fails to deliver collateral, the FRBNY will hold the cash collateral overnight, assess a penalty equivalent to the general collateral rate, and collect the contracted loan fee.