Operating Policy
Statement to Revise Terms of Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise
December 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 and increase its understanding of the impact of RRPs through technical exercises.  As per the September 20, 2013, Statement Regarding Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise, 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 further support of this goal, this week the Committee authorized the Desk to modify the terms of the exercise.  The maximum allotment cap will be increased to $3 billion per counterparty per day from its current level of $1 billion per counterparty per day, effective with the operation on Monday, December 23, 2013. In addition, the fixed rate for the operations will be lowered to 0.03 percent (three basis points) from the current 0.05 percent (five basis points), also effective on December 23, 2013.  The fixed rate is expected to remain at this level through year-end, but may change in the future.  As authorized by the Committee, it will not exceed 0.05 percent (five basis points).

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

Future changes to the maximum bid amount and rate for these RRP operations, or any other key parameter, will be announced with at least one business day prior notice on the New York Fed’s public website.

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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