Proposed Term Sheet for Competitive Bidding by Primary Dealers for the
Purchase of Options on Overnight Repurchase Transactions from the FRBNY

1. "Dutch auction" of options on overnight repurchase agreements for eligible collateral.

2. Options are for exercise only on their individual, specified "Exercise Date". ("European" style for individual dates, not "American" style.) Option Exercise Dates will run from Wednesday, December 15, 1999 through Tuesday, January 18, 2000.

3. One contract will be valued at $50 million.

4. "Auction Days": each business day beginning October [?], 1999 and continuing until terminated by the FRBNY no later than January 2000.

5. Available "strike prices": 150, 200 and 250 basis points above the target Federal Funds rate most-recently announced by the Federal Open Market Committee as of the option’s Exercise Date.

6. Amounts to be auctioned: For the initial ten Auction Days, the FRBNY will auction 20 contracts ($1 billion), for each strike price and each Exercise Date. In the absence of evident demand for individual option Exercise Dates, amounts to be auctioned may be lowered. In the presence of continued demand for individual Exercise Dates, amounts may be raised and auctions will be continued each business day through October, November and into December and, possibly, January. Also, based on experience, different strike prices might be subsequently offered. Thus, during the first two weeks of auctions, the FRBNY would auction $10 billion of contracts per strike price, or $30 billion in total, for each option Exercise Date. Subsequently, if demand continues, the FRBNY would, each business day, auction 20 contracts, per strike price, per option Exercise Date, or higher amounts, continuously into the year-end.

7. Each Auction Day, each Primary Dealer may place no more than one bid for each strike price, for each option Exercise Date.

8. Notice of exercise must be given before 8:30 AM on the option’s Exercise Date. At the time of exercise, Primary Dealers will be required to specify whether settlement will be via Fedwire delivery-vs.-payment or via tri-party custodian.

The FRBNY invites comments on the above, proposed terms and also on whether, in addition, the FRBNY should offer options on matched-sale purchase transactions (reverse repurchase agreements) in parallel with the Standby Financing Facility. Comments should be delivered, by September 22, 1999, to sff.comments@ny.frb.org or via fax to 212-720-1222, attention Sandra Krieger.

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