Mortgage Operations Counterparty Pilot Program FAQs

Why is the New York Fed establishing the Mortgage Operations Counterparty Pilot Program?
Similar to the Treasury Operations Counterparty (TOC) Pilot Program that was launched last year, the Mortgage Operations Counterparty (MOC) Pilot Program is being conducted to explore ways to broaden access to monetary policy operations, and to determine the extent to which additional counterparties beyond the Primary Dealers can augment the New York Fed's operational capacity and resiliency in its monetary policy operations.  In the TOC pilot program, four selected firms transacted with the Open Market Trading Desk (Desk) in secondary market outright purchases of U.S. Treasury securities.   Building on the experience gained from the TOC pilot, which was concluded on July 31, 2014, we are launching the MOC pilot to gain further experience in dealing with a wider range of firms.

How will the program work?
Pilot program participants will participate in the New York Fed’s operations to conduct secondary market outright purchases or sales of agency mortgage-backed securities (MBS), along with Primary Dealers.1  Pilot program participants will be subject to appropriate size limitations on aggregate daily bids and unsettled awards to be determined by New York Fed and commensurate with the firm’s capital position.

Who is eligible for the program?
To be eligible for the pilot program and to maintain eligibility once a pilot program participant, a firm must:

  • Be a U.S. broker-dealer registered with and supervised by the Securities and Exchange Commission (SEC) or a U.S.-chartered bank that is subject to supervision by bank supervisors; 
  • Meet the following capital requirements as of the date of submission of the expression of interest form:
    • A broker-dealer must have net regulatory capital of more than $1 million and less than $150 million, and a minimum total owners’ equity of $1 million
    • A bank must have more than $1 million and less than $150 million of Tier 1 capital as defined in the applicable federal banking regulations, and be considered "Well Capitalized" by its primary regulator 
  • Not be closely affiliated2 with any entity that exceeds the maximum capital specified above;
  • Be able to demonstrate a consistent and meaningful transaction presence (relative to the firm’s size) in the secondary market for agency MBS securities, as both seller and buyer, acting as principal;
  • Be able to confirm and arrange settlement of transactions with the New York Fed’s designated custodian at volumes expected by the New York Fed; and
  • Maintain an effective compliance program and control environment.

How many firms will be selected for this pilot?
We plan to accept a small number of firms for the pilot, but will determine the final number of participants based on the applications we receive.  Conducting the pilot program with a relatively small number of firms will keep the New York Fed’s operational costs relatively low, and will also reduce the time needed to onboard these new counterparties and launch the program once they have been selected.

How will the New York Fed determine which firms to select for this program?
We will attempt to select a diverse subset of the firms that meet our eligibility criteria and business expectations. We anticipate that we will learn the most by dealing with a relatively varied group of firms in the pilot program, with respect to size, business model and location.  Applicants that meet the eligibility criteria will be interviewed by Fed staff to get an understanding of the scope and nature of their intermediation activity in the agency MBS market.

Will the Fed disclose the names of the pilot firms?
Yes, the New York Fed intends to make the names of the MOC pilot participants public on the New York Fed website, as was done for the TOC Pilot Program.

When will the pilot firms be announced?
We hope to announce the selected pilot firms not later than the first quarter of 2015. The exact timing of the announcement will be driven by the number of firms that apply and must be screened and evaluated.

Over what time period will the program operate?
The pilot program will run for about one year.

Will participation in this pilot program guarantee the ability to participate in any permanent program that the New York Fed may establish in the future?
No. Pilot participants will need to re-apply for any permanent program that may be established in the future.

How do I apply for this pilot program?
Submit an Expression of Interest Form word, Expression of Interest Letter pdf, and Volume Data Template excel to by August 22, 2014. Be sure to also submit all materials listed in a Request for Information pdf to by September 30, 2014.

Where should questions regarding the pilot program be directed?
Questions should be directed via e-mail to

Agency MBS purchase operations are limited to newly-issued agency MBS in the To-Be-Announced (TBA) market. Only 15-year and 30-year fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible for purchase. CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents are not eligible for the program.  Dollar roll transactions are excluded from this pilot program. See for more details.

2 Applicant’s close affiliates are defined as any 1) entity that is more than 50% owned, directly or indirectly, by the applicant; 2) entity that is more than 50% owned, directly or indirectly, by any other affiliate of the applicant; 3) person or entity that owns, directly or indirectly, more than 50% of the applicant; 4) person or entity that owns, directly or indirectly, more than 50% of any other affiliate of the applicant; or 5) entity a majority of whose board of directors or a majority of whose general partners are directors or officers of the applicant, or of any affiliate of the applicant.

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