Operating Policy
Statement Regarding Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise
September 20, 2013

As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) has been working internally and with market participants on operational aspects of tri-party reverse repurchase agreements (RRPs) to ensure that this tool will be ready to support the monetary policy objectives of the Federal Open Market Committee (Committee).  RRPs are a tool that can be used for managing money market interest rates, and are expected to provide the Federal Reserve with greater control over short-term rates.

The Desk continues to enhance operational readiness through technical exercises that are limited in size and scope.  This week, the Committee instructed the Desk to further examine how a potential overnight, fixed-rate full-allotment RRP facility might work and how it might affect short-term interest rates.  In support of this goal, and within the context of a limited technical exercise, the Committee authorized the Desk to conduct a series of daily overnight, fixed-rate RRP operations beginning the week of September 23, 2013 and potentially extending through January 29, 2014.  This exercise may be somewhat larger in size than past operational exercises and will be ongoing for at least a period of weeks to gain operational experience with larger transactional flows and to provide additional information about how such operations might improve interest rate control regardless of the size of the Federal Reserve’s balance sheet.

Like prior technical exercises, this exercise is not intended to materially affect the current level of short-term interest rates.  To reinforce this, each eligible counterparty will be initially limited to a maximum bid amount of $500 million.  In addition, the initial fixed rate for the RRP operations will be set at 0.01 percent (one basis point), which is below current market rates.  The maximum bid amount and rate may vary over the life of the exercise, but as authorized by the Committee, will not exceed $1 billion and 0.05 percent (five basis points), respectively.  Changes to the maximum bid amount and rate for these RRP operations will be announced with at least one business day prior notice on the New York Fed’s public website. 

The operations will be open to all eligible RRP counterparties, will use Treasury collateral, will settle same-day, and will have an overnight tenor. The RRP operations will be held, at least initially, from 11:15 am to 11:45 am (Eastern Time).

Like earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future.

The results of these operations will be posted on the public website of the New York Fed, together with the results for other temporary open market operations. The outstanding amounts of RRPs are reported as a factor absorbing reserves in Table 1 in the Federal Reserve's H.4.1 statistical release, their remaining maturity is reported in table 2 of that release, and they are reported as liability items in Tables 8 and 9 of that release.

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