The Federal Reserve Bank of New York loosened its requirements for allowing money funds to become repo counterparties with the Fed from $20 billion to $10 billion. The Fed released an updated "RRP Eligibility Criteria for Money Funds II" late yesterday. It says, "This document sets forth the criteria for acceptance as a counterparty eligible to participate in reverse repurchase transactions (RRP) with the Federal Reserve Bank of New York (FRBNY). FRBNY may engage in RRP, if at all, at the direction of the Federal Open Market Committee (FOMC) in order to drain reserves."
The Criteria explains, "In any such RRP, FRBNY will sell securities held in the System Open Market Account (SOMA) to counterparties subject to an agreement to repurchase them at some future date. FRBNY will use the existing industry tri-party infrastructure to undertake any such RRP. In addition, as with current operations, FRBNY intends to use an auction format for awarding transactions to counterparties. Upon submission of an application and acceptance of that application by FRBNY, an applicant will be added to a public list, maintained on FRBNY's website, of RRP counterparties. Inclusion on such list simply means that the entity is eligible to engage in RRP with FRBNY. It does not mean that the entity is eligible for any other program or transactional relationship with FBRNY. It does not in any way constitute a public endorsement of that entity by FRBNY, nor should such be viewed as a replacement for prudent counterparty risk management and due diligence. FRBNY reserves the right to amend its list of RRP counterparties at any time and for any reason in its sole discretion."
Under "Initial Eligibility," the NY Fed says, "To be accepted as a RRP counterparty, an applicant must: A. be an open-end management investment company that is organized under the laws of a State of the United States, registered under the Investment Company Act of 1940, holds itself out as a money market fund, and is in compliance with the requirements of Rule 2a-7 under such Act, B. have net assets of no less than $10 billion for six consecutive months (measured at each month-end) prior to the submission of the application, C. have been in existence for at least one year prior to the submission of the application, D. be a consistent investor in the tri-party repo market (in particular, in transactions collateralized by U.S. government debt, agency debt, and agency MBS securities), E. be able to confirm and arrange settlement of a significant volume of transactions with FRBNY, and F. be able to satisfy the following transaction requirements: (a) execute RRP with securities margined at 100% (i.e. the value of the securities provided by FRBNY will equal the funds provided by the counterparty), (b) execute term RRPs, with tenors of one-week or longer3, (c) submit minimum bids of $1 billion or greater, (d) execute RRP for next day settlement, and (e) execute the requisite RRP documentation including FRBNY's Master Repurchase Agreement, triparty custody documentation and other documentation, as applicable."
It adds, "In addition to the foregoing, before being accepted as a RRP counterparty, an applicant must satisfy an FRBNY review, consistent with prudent counterparty risk management, of its and its investment adviser's, as applicable, financial condition, compliance program and internal control environment. In connection with this review, FRBNY may consult with the U.S. Securities and Exchange Commission (SEC) and/or the relevant Self-Regulatory Organization (SRO) and other regulators, as applicable, regarding the review considerations listed above, as well as any other matter FRBNY deems relevant. An applicant and, as applicable, its investment adviser, must maintain a compliance program consistent with the applicable regulatory requirements. FRBNY will not accept as a RRP counterparty any applicant, that, in FRBNY's judgment, poses undue risks to the integrity, reputation, or assets of FRBNY."
Crane Data's Money Fund Wisdom database shows that 51 funds from 19 managers fit the new $10 billion-plus criteria, up from 26 funds from 14 managers under the $20 billion for six months criteria. (See the Fed's previous "Reverse Repo Counterparties List" and Crane Data's August 19 News "New York Fed Publishes Reverse Repo Counterparty List of MMFs".) Potentially eligible new funds from new fund managers include: American Funds Money Mkt Fund, Morgan Stanley Inst Liq Prime and Northern Instit Govt Select, State Street Inst Liquid Res, and UBS Select Prime Money Mkt. Contact us if you'd like to see our full list of funds with assets over $10 billion for 6 consecutive months.
