The following frequently asked questions (FAQs) provide further information about the Federal Reserve's Standing Repo Facility (SRF) operations.
What are the SRF operations?
At its July 2021 meeting, the Federal Open Market Committee (FOMC) established the SRF to serve as a backstop in money markets to support the effective implementation and transmission of monetary policy and smooth market functioning. The FOMC has authorized and directed the New York Fed’s Open Market Trading Desk (the Desk) to conduct overnight repurchase agreement (repo) operations with a specified minimum bid rate and aggregate operation limit. When the Federal Reserve enters into an overnight repo transaction, it buys a security from an eligible counterparty and simultaneously agrees to sell the security back the next day. The difference between the purchase price and the sale price of the securities implies a rate of interest earned by the Federal Reserve on the transaction. The FOMC sets the SRF minimum bid rate, which is the minimum interest rate the Federal Reserve is willing to receive in an SRF operation.
What are the SRF operational parameters?
|Standing Repo Facility Parameters|
|Schedule:||Every business day from 1:30 p.m. to 1:45 p.m. (ET), unless otherwise stated|
|Aggregate operation limit:||$500 billion|
|Proposition limit:||Two propositions per eligible security type, subject to a $20 billion maximum per proposition|
|Minimum bid rate:||0.25 percent|
|Eligible counterparties:||Primary dealers, and depository institutions once eligibility is expanded|
|Eligible securities:||U.S. Treasuries, agency debt, and agency mortgage-backed securities (for additional details on the security types see Repo Securities Schedule)|
Who is eligible to participate in SRF operations?
Counterparties for the SRF include primary dealers and will be expanded over time to include additional depository institutions. Initially, criteria will be established to effectively manage onboarding of interested depository institutions. Consistent with the New York Fed’s commitment to ensuring its counterparty policies promote a fair and competitive marketplace, these criteria will be adjusted over time to expand depository institution eligibility. The initial criteria will allow depository institutions with holdings of U.S. Treasury, agency debt, and agency mortgage-backed securities greater than $5 billion as of June 30, 2021 or with total assets greater than $30 billion to express interest in becoming SRF counterparties starting on October 1, 2021. All counterparties must be able to transact on the tri-party repo platform.
How will SRF operations be conducted?
The Desk conducts SRF operations via FedTrade, the Desk's proprietary trading system using a multiple-price auction format.
How will changes to SRF operations be communicated?
The FOMC directs the Desk to conduct SRF operations as detailed in its implementation note. Any changes to the operational parameters not provided by the FOMC’s implementation note will be announced on the New York Fed’s website.
How is the minimum bid rate for SRF operations determined?
The minimum bid rate for SRF operations is set by the FOMC and detailed in the most recent implementation note.
How are propositions submitted in SRF operations?
The minimum proposition size is $1 million, and propositions must be submitted in $1 million increments. 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.
How are SRF awards determined?
The Desk conducts SRF operations in a multiple-price auction format, in which allocations are made to participants at the rate they bid in the operation. Bid rates can be at or above the minimum bid rate. Individual awards are made at the rates received by the Desk and 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 (up to the per bid maximum amount).
If the total amount of propositions received is greater than the aggregate operation limit, individual propositions 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, individual propositions may either be partially awarded or not awarded based on their proximity to those benchmark rates for each security type.
Whom should SRF counterparties call if they experience difficulties during a FedTrade operation?
Counterparties may call the Desk with submission and verification questions. For system-related problems, primary dealers may call primary dealer support.
How are trades resulting from SRF operations settled?
In the tri-party repo market, trades are settled on the books of a clearing bank. Trades resulting from SRF operations are cleared and settled on the tri-party repo platform operated by the Bank of New York Mellon. The Bank of New York Mellon acts as an agent to the Desk and the Desk’s counterparty by taking custody of securities, valuing these securities and ensuring the appropriate margin is applied, and settling the transaction on its books.
How will the Desk communicate SRF operation results?
After the completion of an SRF operation, the Desk publishes a summary of the results that provides the total amount submitted, total amount accepted, and weighted-average award rate by security type, as well as the stop-out rate, high rate, and low rate of propositions for each security type.
Section 11 of the Federal Reserve Act, as amended by 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.