Wanted: Counterparties to participate in the Federal Reserve Bank of New York's Reverse Repo Program. That was the message sent out by the NY Fed yesterday in a "Statement Regarding Reverse Repurchase Transaction Counterparty Applications." The statement reads: "Effective today, the New York Fed is accepting applications from firms interested in becoming a counterparty eligible to participate in RRP transactions with the New York Fed. The RRP counterparty eligibility criteria for all entity types (banks, government-sponsored enterprises, and money market funds) have substantially remained the same as those announced on August 16, 2012. Applications for banks and government-sponsored enterprises are due on November 24, 2014. For money funds, part I of the application is due on November 24, 2014 and part II is due on December 8, 2014." This represents the second expansion of the RRP program in as many weeks (see Oct. 30 "Link of the Day," "NY Fed to Test Other Rates on RRP, Offer Additional $300 Billion in Term Repo") following a previous period of restraint and warnings from Fed officials.
The New York Fed first announced its plan to expand its counterparties for conducting reverse repo agreement transactions on March 8, 2010. It explained, "The expansion of counterparties was intended to enhance the capacity of such operations to drain reserves beyond what could likely be conducted through the New York Fed's traditional counterparties, namely, Primary Dealers. Over the course of the period from March 8, 2010, to August 16, 2012, the New York Fed adjusted the eligibility criteria in order to accept a broader set of expanded counterparties. Since September 23, 2013, this expanded counterparty list has also been used to conduct overnight RRP transactions. This program to expand counterparties for the conduct of RRP transactions is a matter of prudent advance planning, and no inference should be drawn about the timing of any prospective monetary policy operation."
Going forward, the NY Fed explains, "As the ON RRP operations to date have been consistent with a significant degree of control over the federal funds rate, it is therefore anticipated that this will be the last wave of applications accepted. Further, applicants should note that the ON RRP operations currently conducted with expanded reverse repo counterparties will be phased out when no longer needed to help control the federal funds rate. After this last wave of expanded reverse repo counterparties is added, likely at some point in the first quarter of 2015, firms that meet the above-mentioned eligibility criteria will be allowed to submit applications, but these applications will be considered only if the addition of new counterparties is deemed necessary to support the effective implementation of monetary policy. Currently, the New York Fed does not anticipate increasing the total number of expanded reverse repo counterparties after those added from the last wave of applications.
The current list of the Investment Managers on the Fed's Reverse Repo Counterparties list includes: BlackRock Advisors, BlackRock Fund Advisors, BofA Advisors, Charles Schwab Investment Management, Deutsche Investment Management Americas, The Dreyfus Corporation, Federated Investment Management Company, Fidelity Investments Money Management, Fidelity Management & Research Company, Goldman Sachs Asset Management, Invesco Advisers, J. P. Morgan Investment Management, Legg Mason Partners Fund Advisor, Morgan Stanley Investment Management, Northern Trust Investments, Passport Research, Prudential Investments, RBC Global Asset Management (U.S.), SSgA Funds Management, T. Rowe Price Associates, UBS Global Asset Management (Americas), U.S. Bancorp Asset Management, The Vanguard Group, and Wells Fargo Funds Management. (All of the 25 largest money fund managers, which represent 96.3% of all assets, are included on this list, with the exceptions of: Franklin, American Funds, SEI, HSBC and Reich & Tang.)
The list of Banks on the RRP Counterparties list includes: Bank of Montreal (Chicago Branch); The Bank of New York Mellon; Barclays Bank PLC - New York Branch; Citibank, N.A.; Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch; Credit Agricole Corporate and Investment Bank; Credit Suisse AG, New York Branch; Deutsche Bank AG NY; Discover Bank; HSBC Bank USA; National Association; JPMorgan Chase Bank, N.A.; Mizuho Bank, Ltd.; Morgan Stanley Bank, N.A.; Royal Bank of Canada; Societe Generale New York Branch; State Street Bank and Trust Company; Svenska Handelsbanken AB New York Branch; and Wells Fargo Bank, NA.
Government sponsored enterprises include: Federal Home Loan Bank of Boston; Federal Home Loan Bank of Chicago; Federal Home Loan Bank of Cincinnati; Federal Home Loan Bank of Des Moines; Federal Home Loan Mortgage Corporation (Freddie Mac); Federal National Mortgage Association (Fannie Mae). These counterparties are in addition to the existing set of Primary Dealer counterparties with whom the Federal Reserve can already conduct reverse repurchase agreements.
Reuters' explains in "N.Y. Fed accepts applications to expand reverse repo participants", which says, "The New York Federal Reserve said on Wednesday it is accepting applications from firms to participate in the U.S. central bank's fixed-rate reverse repurchase agreement program, which is a critical tool to control short-term interest rates when it decides tighten policy. Right now, there are 140 reverse repo counterparties, including 94 of the largest money market funds, six government-sponsored enterprises (Fannie Mae, Freddie Mac, and four Federal Home Loan Banks), 18 banks, and 22 primary dealers that are the top Wall Street firms that do business directly with the Fed. This last wave of expanded RRP counterparties will likely be added in first quarter of 2015, the New York Fed in a statement."
As we wrote in our recent recap of November Money Fund Portfolio Holdings, the Federal Reserve Bank of New York's RPP program issuance (held by MMFs) plunged following quarter-end, but it remained the largest program with 28.3% of the repo market ($144.7 billion). The NY Fed's issuance has skyrocketed in the past year. In October 2013, it issued just $8.8 billion to money market funds tracked by Crane Data. It spiked to $139.2 billion in December 2013, $203.1 billion in March 2014, $274.5 billion in June 2014, $287.3 billion in September 2014.
Crane Data shows 61 funds (up from 55 last month) and 18 fund complexes participating in the NY Fed repo program with just 4 money funds holding over $7 billion (the previous cap). The largest Fed repo holders include: JP Morgan US Govt ($15.3B), Goldman Sachs FS Trs Obl Inst ($10.7B), Morgan Stanley Inst Liq Trs ($9.5B), State Street Inst Lq Res ($7.7B), Dreyfus Tr&Ag Cash Mgmt Inst ($6.5B), JP Morgan US Trs Plus ($6.2B), UBS Select Treas ($5.5B), Federated Gvt Oblg ($4.7B), Schwab Gvt MMkt ($4.3B), Federated Trs Oblg ($4.3B), Western Asset Inst Gvt ($4.2B), Fidelity Inst MMkt Gvt ($4.1B), First American Trs Oblg ($4.1B), Fidelity Inst MM MMkt ($4.0B), First American Gvt Oblg ($3.5B), Goldman Sachs FS Gvt ($3.5B), Fidelity Inst MM Prm ($3.4B), BlackRock Lq T-Fund ($3.0B), Morgan Stanley Inst Lq Gvt ($3.0B), and Dreyfus Govt Cash Mngt ($2.9B).
As we also mentioned previously, Fitch Ratings released a report on Tuesday that says Treasury Funds have become heavily reliant on the RRP. (See our `Nov. 11 "Link of the Day," "Fitch: Treasury Funds Reliant on RRP.) "Eligible treasury money funds allocated an average of 39% of their assets to the RRP at the end of the quarter, far outpacing eligible government and prime funds, which allocated 19% and 10% on average, respectively, according to data from Crane Data," wrote Fitch. They added, "Constrained by a limited supply of eligible investments, money funds have consistently been the largest participants in the RRP, comprising over 95% of its total investment on Sept. 30."
