Effective May 2, 2008

What is the TSLF?
The TSLF is a 28-day facility that will offer Treasury general collateral (GC) to the Federal Reserve Bank of New York’s primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.

What are the differences between the SOMA Securities Lending program and the TSLF?
The SOMA Securities Lending program offers specific Treasury securities held by SOMA for loan against Treasury GC on an overnight basis. Dealers bid competitively in a multiple-price auction held every day at noon. The TSLF will offer Treasury GC held by SOMA for a 28-day term. Dealers will bid competitively in a single-price auction held once per week and borrowers will pledge program-eligible collateral.

What are the differences between the TSLF and other Federal Reserve operations, like the TAF and term repo operations?
The Term Auction Facility (TAF) offers term funding to depository institutions via a bi-weekly competitive auction. In contrast, the TSLF will offer Treasury GC to the New York Fed’s primary dealers in exchange for other program-eligible collateral. The New York Fed term repo operations are designed to temporarily add reserves to the banking system via term repos with the primary dealers. These agreements are cash-for-bond agreements and have an impact on the aggregate level of reserves available in the banking system. The bond-for-bond lending of the TSLF, however, will have no impact on reserve levels.

Do these operations have a reserve impact?
No, the securities loans will not affect overnight bank reserves since the loans are collateralized with other securities.

What collateral is eligible for pledging?
Eligible collateral will be determined by the Federal Reserve and presently includes all collateral eligible for tri-party repurchase agreements arranged by the Open Market Trading Desk (Schedule 1) and AAA/Aaa-rated private-label residential mortgage-backed securities (MBS), commercial MBS, agency collateralized mortgage obligations (CMO) and other asset-backed securities (ABS), excluding Collateralized Debt Obligations (CDO), Collateralized Loan Obligations (CLO) and Collateralized Bond Obligations (CBO)(Schedule 2). Schedule 2 also includes everything in Schedule 1.

How often will the New York Fed lend securities for term?
The New York Fed will auction a set amount of Treasury GC on Thursdays at approximately 2:00 p.m. ET beginning on March 27.

What is the term of a loan?
Loans will settle the business day following the auction and will mature 28 days later unless otherwise stated in the announcement. For example, the term of the loan may be adjusted to reflect holidays.

Can a dealer terminate a loan early?
No.

How are loans allocated among dealers?
Loans are awarded based on a competitive bidding process in a single-price auction format. Primary dealers that have elected to participate in the program may submit up to two bids via FedTrade or, if necessary, over the phone, after the auction has been announced at approximately 2:00 p.m. ET.

How much can dealers borrow at each auction?
Dealers can borrow no more than 20 percent of the par value offered of Treasury GC. In addition, the New York Fed reserves the right to reject bids at its discretion.

When will the New York Fed announce auction offering amounts?
The New York Fed will announce the par value of offering amounts as well as other auction details at 1:00 p.m. ET the day prior to the auction. Announcements will be posted to the New York Fed website shortly after the auction close time, 2:30 p.m. ET.

Which general collateral Treasury securities will SOMA lend?
The New York Fed will detail the basket of Treasury GC that will be lent in the operation in each auction announcement, though the New York Fed reserves the right to alter the basket at any time. In addition, the New York Fed may substitute particular securities in the general collateral basket during the life of the securities loan.

Which general collateral Treasury securities will be designated to the respective primary dealers awarded through the auction?
The allocation of these general Treasury securities will be done on a pro rata basis.

Are the auction results released to the public?
The total amount of propositions and awards, as well as the stop-out award rate, will be released in a timely manner after the auction is complete via FedTrade or by phone. In addition, summary information will be posted on the New York Fed website following the auction.

Are primary dealers required to bid? Can other market participants bid in the operation?
Only primary dealers are eligible counterparties for the TSLF. Dealer participation is entirely voluntary. The New York Fed does not evaluate dealer performance based on participation in the TSLF. No other market participants are eligible.

Can the New York Fed modify program terms?
Similar to the existing SOMA securities loan program for specific Treasury collateral, the New York Fed can modify program terms at any time.

How and when are the loans and collateral settled?
Loans and collateral will be exchanged free of payment between securities accounts at the dealer’s designated clearing bank. Loans will settle on a T+1 basis.

How are collateral pledges handled?
Collateral pledges must be submitted to the dealer’s clearing bank.

When are loans delivered?
Loaned securities are pledged to a dealer’s custody account when the dealer sends eligible collateral, adjusted for market value and margin to the New York Fed's custody account.

How is the lending fee calculated?
On auction date, the New York Fed will determine the total lending fee owed, in dollars, that will be due at the end of the loan. Dealers’ clearing bank accounts will be charged for the fees due on the maturity date.

The lending fee will be calculated* by multiplying: a) the total quoted price of the borrowed securities excluding accrued interest (i.e. the "clean" price) as of the close of business on the day before the auction, by b) the stop-out fee rate, by c) the term of the loan, in days, divided by 360.

*This calculation does not depend on the accrued interest on the securities lent by the New York Fed, or on whether and when coupon payments are required to be remitted back to the New York Fed. Changes to the invoice price of the borrowed securities resulting from changes to the quoted price, accrual of interest and/or coupon payments will affect the value of the collateral required to be pledged, but will not change the total lending fee owed.

Will the New York Fed substitute announced collateral for other general collateral?
The New York Fed reserves the right to substitute lent general collateral each day so as to avoid pledging collateral that may trade with scarcity value in the repo market. In addition, the New York Fed can call for collateral substitutions by a dealer if the pledged collateral were to deteriorate in value or quality and fall out of the eligible collateral pools.

Can dealers substitute pledged collateral?
Dealers can substitute eligible pledged general collateral for other program-eligible general collateral.