FAQs: Repurchase Agreement Operations

March 15, 2020

The following frequently asked questions (FAQs) provide further information about the Federal Reserve's repurchase agreement (repo) operations.

How does the Desk intend to implement the FOMC’s directive to conduct repo operations?
The Federal Open Market Committee (FOMC) has directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to conduct overnight and term repo operations to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term U.S. dollar funding markets. Overnight repo operations will generally conducted daily. Two-week term repo operations will generally be conducted twice per week. One-month and three-month term repo operations will each generally be conducted once per week. The Desk will adjust the timing and amounts of repo operations as necessary to achieve the FOMC’s directive.

What are the repo operations conducted by the Desk?
When the Desk conducts an open market repo operation, it temporarily purchases eligible securities from primary dealer counterparties, with an agreement to sell the securities back on the repo’s specified maturity date. The Desk’s purchase increases the amount of deposits held by depository institutions (also known as bank reserves) on the Federal Reserve’s balance sheet for the duration of the repo. Repo operations may be for either overnight maturity or for a specified term. The difference between the purchase price and the sale price of the securities, together with the length of time between the purchase and sale, implies a rate of interest earned by the Federal Reserve on the transaction.

What securities are being used for repo operations?
Securities eligible as collateral for both overnight and term repo operations include Treasury, agency debt, and agency mortgage-backed securities (MBS).

Who is eligible to participate in repo operations?
Primary dealers are eligible to participate in these operations directly with the Federal Reserve. The list of primary dealers and information on expectations and requirements for primary dealers can be found on the Federal Reserve Bank of New York website.

How will repo operations be conducted?
The Desk conducts repo operations via FedTrade, the Desk's proprietary trading system using a multiple-price auction format. Repos will be cleared and settled on the triparty repo platform with Bank of New York Mellon as the triparty agent.

At what time of day will overnight repo and term repo operations be conducted?
Repo operations are conducted in the morning, generally around 8 AM ET. Details of the operation schedule, including the specific timing of each business day’s operation(s) will be published the prior afternoon on the Repurchase Agreement Operational Details page.

How will changes to the schedule or parameters of repo operations be communicated?
The schedule of term and overnight repo operations will be announced on or around the 9th business day of each month on the Repurchase Agreement Operational Details site. The Desk will update the site daily with detailed parameters for the following business day’s operation(s). The operation schedule and parameters are subject to change. Subscriptions to email notifications of changes to repo operations are available through the page linked above.

How does the Desk set the minimum bid rate for overnight and term repos?
The FOMC directed the Desk to conduct repo operations to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term U.S. dollar funding markets. The minimum bid rates for overnight and term operations are set at levels which are intended to achieve those objectives. Since September 2019, the minimum bid rate for the overnight repo operation has been equal to the rate of interest on excess reserves. Unless otherwise specified, the minimum bid rate for term repo operations is set at the greater of: (1) the prevailing market rate that reflects market expectations for the path of the federal funds rate over a similar tenor to that of the repo operation, plus a spread of 5 basis points for one-month repo operations and 10 basis points for three-month repo operations, or (2) the minimum bid rate for the overnight repo operation on the same day. These are technical parameters and no inference should be drawn about the Federal Reserve’s views on the current or future stance of monetary policy based on the minimum bid rates for repo operations. These parameters are subject to change.

How are propositions submitted in repo operations?
In both overnight and term repo operations, the minimum proposition size is $1 million, and propositions must be submitted in increments of $1 million. Each counterparty is permitted to submit up to two propositions per security type that are at the minimum bid rate or higher and do not exceed the specified proposition limit. The Desk communicates the proposition limits, aggregate operation limits, and minimum bid rates for each operation in the Repurchase Agreement Operational Details page. These parameters are subject to change.

How are repo awards determined?
The Desk will conduct repos in a multiple-price auction format, in which allocations are made to participants at the rate they bid in the operation. As such, awards are made at different rates, depending on the bids received. All awards are allocated in $1 million increments.

If the total amount of propositions received is less than or equal to the aggregate operation limit, all counterparties will be awarded at their submitted rates for their full submitted amounts.

If the total amount of propositions received is greater than the aggregate operation limit, counterparty bids reflecting the most competitive rates relative to the benchmark rates set internally for each security type will be awarded at their submitted rates up until the aggregate operation limit is reached. After that, counterparty bids may either be partially awarded or not awarded based on their proximity to those benchmark rates for each security type.

Whom should primary dealers call if they experience difficulties during a FedTrade operation?
Primary dealers may call the Desk with submission and verification questions. For system-related problems, primary dealers may call primary dealer support.

How will the Desk communicate operation results?
After the completion of a repo operation, the Desk publishes a summary of the results that provides the total amount submitted, total amount accepted, and weighted-average award rate by collateral type, as well as the stop-out rate, high rate, and low rate of propositions for each collateral type.

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. These will be available here.

FAQ: March 11, 2020 »