Central Banks

NY Fed Text: Update On Tri-Party Repo Infrastructure Reform

WASHINGTON (MNI) - The following issued by the New York Federal Reserve Bank Wednesday:

Earlier this year, the Tri-Party Repo Infrastructure Reform Task Force issued final report describing the status of industry efforts reform the tri-party repo market. The Force indicated that additional time would needed to reduce market reliance intraday credit extensions by clearing banks broker-dealers. Following the publication of the Task Forces final report, the Federal Bank of New York announced that the Federal Reserve would intensify its supervisory oversight of key -party market participants efforts implement the Task Force recommendations in a timely .

Accordingly, the Federal Reserve expects market participants it supervises to reduce reliance intraday credit and make risk management practices resilient to a stress in the tri-party repo market. particular:

* All participants expected to provide for more timely and accurate trade confirmations. While clearing banks have implemented a three-way trade confirmation process part of their 2011 reform efforts, many market participants continue send late or inaccurate confirmations. Improving these practices is necessary support a sharp reduction intraday credit usage.

- Supervisors measure progress on the timely confirmation on the value of trades.

* Clearing banks must introduce changes their technology, policies and procedures in to achieve a more resilient infrastructure the tri-party market.

* Broker-dealers and cash investors affiliated bank holding companies and foreign banking organizations are expected to modify business practices and processes soon order to adapt effectively to coming infrastructure changes.

- Broker-dealers are expected to reduce their reliance on short-term tri-party repo financing, particularly for less liquid assets, to achieve the necessary reductions in the usage of intraday clearing bank credit.

- Cash investors are expected to their credit risk and collateral management practices more robust stress events.

the clearing banks and the largest broker-dealer affiliates of bank holding companies have asked to submit execution plans and timelines. The clearing banks already submitted their plans; the largest broker-dealer affiliates of bank holding companies are now in the of drafting plans that reflect how they will adapt their clearing banks plans. The collective set of plans will be evaluated supervisors this fall.

Over the course of the next several months, the Federal Reserve, working with other regulators, will continue to closely monitor the actions of market participants and use all supervisory tools at its to encourage constructive and timely action to reduce sources of instability the tri-party market.


Adapted from: mninews.deutsche-boerse.com, July 18, 2012.