FAQs: Agency Commercial Mortgage-Backed Securities

March 17, 2021

The following frequently asked questions (FAQs) provide further information about the Federal Reserve’s operations in agency commercial mortgage-backed securities (agency CMBS).


How does the Desk intend to implement the FOMC’s plan to purchase agency CMBS?
Effective March 18, 2021 the Federal Open Market Committee (FOMC) continued to direct the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase agency CMBS as needed to sustain the smooth functioning of the agency CMBS market. For the most recent Desk Statement regarding agency CMBS purchases, see here.

How will the Desk communicate its agency CMBS purchase amounts and schedule?
In light of the sustained smooth functioning of markets for these securities, the Desk will no longer conduct regular operations to purchase agency CMBS after March 23, 2021. The Desk remains ready to conduct agency CMBS purchase operations as needed to sustain smooth functioning of markets for these securities. If purchase operations are warranted, the Desk will publish details of its next operation(s)—including upcoming operation dates, the time offers are due to the investment manager, security type and maximum purchase amount—in advance. The purchase amounts will depend on the reasonableness of prices offered. Agency CMBS principal payments will not be reinvested.

How will the Desk determine when it is appropriate to schedule future agency CMBS purchase operations?
The Desk will conduct additional agency CMBS purchase operations if needed to sustain the smooth functioning of markets for these securities. The Desk will continue to refer to a suite of complementary categories of quantitative and qualitative indicators to assess the functioning of the agency CMBS markets and determine whether to conduct operations.

What types of agency CMBS are eligible for Desk purchases?
The Desk will purchase in the open market agency CMBS secured primarily by multifamily home mortgages that are guaranteed fully as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae and that the Desk has determined are suitable for purchase.

How are agency CMBS purchases conducted?
On March 24, 2020, the New York Fed retained BlackRock Financial Markets Advisory as a third-party vendor to operationalize these purchases and transact with approved counterparties on behalf of the SOMA. BlackRock was selected on a short-term basis to serve as an investment manager after considering their expertise in trading and analyzing agency CMBS in the secondary market, and robust operational and technological capabilities.

The details for each operation will be disclosed at least one day prior to the operation. The Desk, through its investment manager, will solicit offers from approved counterparties to purchase agency CMBS. Operations will be conducted using multiple-price, competitive operations with approved counterparties. A "multiple-price" operation is one in which the same security can be awarded at different prices, with awards given to participants at a price corresponding with an individual offer submitted to the operation. The minimum lot size per CUSIP will be indicated in each operation announcement. Offers will be evaluated for reasonable pricing and only the most competitive offers will be accepted. The purchase amount of agency CMBS will be based on the current face value of accepted securities. The term sheet for agency CMBS purchases can be found here.

Agency CMBS Reporting

How will the Desk communicate the operation results?
Results from agency CMBS operations will be posted on the New York Fed’s website following each operation. The information posted will include the total amount of offers received per operation, the total amount of offers accepted per operation, the security type, and the operation date. In addition, participating counterparties will receive the operation results, including their accepted offers, through the investment manager following the close of the operation.

How will SOMA holdings of agency CMBS be reported?
Currently, settled agency CMBS holdings, at the CUSIP level, are reported on a weekly basis on the System Open Market Account Holdings of Domestic Securities webpage.

Total agency CMBS holdings will be reported after settlement occurs as part of the MBS line in table 1 on the H.4.1. statistical release titled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks."

Will the Desk release operation pricing results?
Yes. In order to ensure the transparency of its agency CMBS transactions, the Desk will continue to publish historical operation results at mid-month for the prior monthly period if any operations are conducted in such prior monthly period. In addition to the pricing information released each month, Section 1103 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires that detailed operational results, including counterparty names, be released two years after each quarterly transaction period.

Approved Counterparties

Who is an approved counterparty?
Approved counterparties include a subset of the primary dealers as well as other dealers who have applied for and received approval. On September 4, the New York Fed announced an expansion of approved counterparties in order to broaden access to the operations and increase the New York Fed’s operational capacity and reach into the agency CMBS market.

Who is eligible to transact in agency CMBS with the Federal Reserve?
All primary dealers are eligible agency CMBS counterparties. Some non-primary dealers are also eligible counterparties, and must meet the following criteria:

  • Be a U.S. broker-dealer registered with the Securities and Exchange Commission (SEC) and regulated as a member of the Financial Industry Regulatory Authority (FINRA).
  • Have net regulatory capital of at least $1 million and a minimum shareholders’ equity of $1 million, as of the date of submission of the expression of interest form.
  • Be able to demonstrate an active and established business presence in agency CMBS.
    • A firm may demonstrate an “active” business presence by having transacted in agency CMBS over the last year, preferably at volumes consistent with or above the prior two years. Applicants that have not been active or show a substantial drop-off in activity over the last year may either be rejected or be offered the opportunity to explain the decision to apply if they once had a sizeable presence prior to a year ago.
    • A firm may demonstrate an “established” presence by having been active in agency CMBS for at least 3 years.
  • Maintain sound organizational and satisfactory governance practices, financial condition, regulatory condition and internal controls.
  • Be able to demonstrate good faith efforts to support equal opportunity and diversity, including promoting the fair inclusion of women, minorities and veterans in the firm’s workforce, consistent with law.
    • “Good faith efforts” means efforts to identify and, if present, remove barriers to minority, women and veteran employment or to expand employment opportunities for minorities, women and veterans within the workforce such as expanding applicant pools through recruiting or advertising.
  • Be willing to carry out the responsibilities associated with the role, including by responding promptly and completely during the course of the application review and in the execution of counterparty duties.

Will the Desk continue to accept new counterparty applications for the agency CMBS program?
The Desk will not accept applications for new counterparties for agency CMBS at this time.

How did the New York Fed determine which non-primary dealers to approve as counterparties?
Selection remains within the New York Fed’s discretion and decisions regarding selection were made based on the factors outlined on the expression of interest and described above, considered in their totality.

How did the New York Fed include smaller firms and minority-, women-, and veteran-owned business entities in supporting the agency CMBS purchases?

The New York Fed is committed to diversity and inclusion in all aspects of its business and to the advancement of these values through our implementation of agency CMBS purchases. Smaller firms and minority-, women-, and veteran-owned business enterprises were encouraged to express their interest in serving in a counterparty capacity. All firms submitting an expression of interest were expected to provide information about their efforts to support equal opportunity and diversity, including the fair inclusion of women, minorities and veterans in their workforces.

What is expected of approved counterparties?
Approved counterparties were expected to meet all of the requirements of the role. For more information on the duties of a counterparty, please see the Expression of Interest Form.

Does selection as a counterparty guarantee the ability to participate in any other market operations of the New York Fed?
No. Selected participants are only able to act as counterparty for agency CMBS transactions and not for any other market operations of the New York Fed or the 13(3) facilities.

FAQs: December 16, 2020 »

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