Why has the New York Fed developed a comprehensive counterparty policy?
The new counterparty policy is the result of a multi-year review of the framework for counterparty relationships across the full range of the New York Fed Trading Desk’s (Desk’s) operations in domestic and foreign financial markets. It is intended to present a more comprehensive overview of the New York Fed’s counterparty framework, by emphasizing a number of elements that are common across counterparties for different market operations.

What has changed as a result of the new policy?
There are three changes to the eligibility criteria for primary dealers.

• The minimum net regulatory capital (NRC) threshold for broker-dealers has been reduced from $150 million to $50 million, to broaden the pool of eligible firms.
• The minimum Tier 1 capital threshold for banks and branches and agencies of foreign banking organizations has been raised from $150 million to $1 billion, to better align the Tier 1 threshold with the new NRC threshold. The threshold is measured with respect to Tier 1 capital of the bank holding company.
• A 0.25 percent minimum Treasury market share threshold has also been introduced as a means to more directly quantify the business capabilities of firms that express interest in becoming a primary dealer.

Additionally, to enhance transparency about foreign market operations, and promote greater consistency across domestic and foreign market operations, the New York Fed is for the first time publishing the lists of its foreign exchange (FX) and foreign reserves management (FRM) counterparties, as well as information on its approach to FRM counterparties.

Why is the New York Fed reducing the net regulatory capital threshold for primary dealers from $150 million to $50 million?
The New York Fed is seeking to expand and diversify the pool of firms eligible to apply for primary dealer status. Doing so offers the opportunity to increase capacity and further support competitive pricing for its open market operations. This change is informed by the New York Fed’s experiences and lessons learned in conducting its pilot programs with small dealers for Treasury operations and MBS operations in 2013 and 2014 respectively.

Why is the New York Fed raising the minimum Tier 1 capital threshold from $150 million to $1 billion at the same time that it is reducing the minimum net regulatory capital threshold?
We are using the holding company’s Tier 1 capital, which is a gross measure of capital across the consolidated operations of the firm, as the metric for banking organizations. By contrast, the net regulatory capital measure for broker-dealers is a net measure of capital of the broker-dealer subsidiary. We are increasing the Tier 1 threshold to better align these two different metrics.

What is the purpose of a minimum capital threshold for primary dealers?
The New York Fed regards the level of a firm’s regulatory capital as one indication of its operational capacity to perform the responsibilities of a primary dealer.

Why is the New York Fed adding a market share threshold for primary dealers?
A measure of Treasury market share is a direct measure of a firm’s capacity to perform the responsibilities of a primary dealer. The threshold measures a dealer’s market-making activity, in both the primary and secondary markets.

When are the new counterparty policy and eligibility criteria effective?
The new policy and eligbility criteria are effective immediately.