OFR Update on Bilateral Repo Collection

Delivered at the meeting on November 16, 2017, of the principals of the Financial Stability Oversight Council (FSOC or Council)

Dick Berner could not be here today and asked that I update the Council on the OFR’s bilateral repo collection initiative.

For several years, the Council has called for better insight and transparency into markets for securities financing transactions. As you know, these wholesale funding markets are critical to the functioning of the financial system.

Four-and-a-half years ago, Dick promised the Council that we would address gaps in data for such securities financing transactions. With the New York Fed, we did a pilot collection that informed how we would fill one such gap, in bilateral repo transactions. Last September, Dick consulted with the Council on our plans for a permanent repo data collection.

In collaboration with the New York Fed and the Board [of Governors of the Federal Reserve System], we want to update you today on our progress. On behalf of the OFR team including Dick, I want to thank President Dudley, Governor Powell, and Chair Yellen for their support and collaboration.

We intend to collect data in two stages. The first will focus on cleared repo transactions. In the second, we will collect data on uncleared bilateral repo transactions. We intend to issue a Notice of Proposed Rulemaking on a cleared repo collection in the first half of 2018.

These collections are critical for three reasons:

• First, they will fill a major data gap in securities financing transactions. From the data pilot, we estimate that bilateral repo activity constitutes about half of the repo funding of major dealers, and the majority of the funding that dealers provide to others. Monitoring the tenor, haircuts, and rates in such repos across a broad range of collateral will help us understand the functioning of and spot stress in asset and funding markets.
• Second, as David [Bowman of the Federal Reserve] just mentioned, the interest rate information that we collect on cleared repo transactions is critical for the production of the Secured Overnight Financing Rate (SOFR) selected by the Alternative Reference Rate Committee on June 22 as an alternative to LIBOR. The cleared repo data will be used immediately in the publication of the SOFR. And subsequently collecting data on uncleared bilateral repo transactions will ensure the availability of comprehensive data for rate production as markets evolve.
• Third, by shedding light more broadly on the specifics of repo funding, these collections will support other FSOC initiatives, such as understanding dynamics that affect liquidity in Treasury markets.

Stacey Schreft is the Deputy Director for Research and Analysis at the Office of Financial Research