OFR wants daily reports on most repo transactions from biggest banks

WASHINGTON —  The Office of Financial Research issued a proposed rule Thursday that would require certain financial institutions to report daily transaction-level data on their non-centrally cleared bilateral repurchase agreement trades to gain greater insight into an often opaque yet crucial financial market.  

The proposal would compel both bank-affiliated and nonbank broker-dealers to submit daily reports with trade and collateral data on pending non-centrally cleared bilateral repurchase agreement transactions. The would apply to roughly 40 of the largest broker-dealers, the office said.

"The OFR is proposing to fill this data gap and provide regulators with more insight into Treasury market functioning, by requiring the largest institutions in the repo market to submit data on their non-centrally cleared bilateral transactions to the OFR each day," said James Martin, deputy director of operations.

Treasury building
The Office of Financial Research, an arm of the Treasury Department, is seeking additional data on bilateral uncleared Treasury repurchase agreements as a way of gaining additional visibility into the critical market.

Repo transactions are a critical tool for financial institutions to exchange assets as collateral for short-term borrowing. Bilateral repo transactions — those that are conducted between two parties without a central counterparty or triparty custodian — are the most common and least supervised segment of the market, the research office said. and enhanced reporting requirements are meant to empower regulators to mitigate risks to the financial system.

"This initiative to provide better visibility into this opaque financial market segment is vital to helping ensure financial stability," James said. "When significant stress on U.S. Treasuries spilled into the repo market in March 2020, regulators didn't have full insight into the segment of the repo market where participants were most active, namely the non-centrally cleared bilateral segment. This was due, in part, to the lack of data reported to officials on these transactions."

In 2019, the office began collecting data on centrally cleared repo transactions, but this left the majority of the market still invisible to regulators. Thursday's notice indicates the office wants to  go further, expanding such oversight to the majority of repo transactions by the biggest financial institutions.

The multitrillion-dollar Treasury repo market serves bank and nonbank liquidity needs and is one of the most important cogs in the global financial system. It is also the underlying market from which the Secured Overnight Financing Rate is based. SOFR is one of the main interest rate benchmarks to replace the defunct Libor interest rate, which is slated to sunset entirely later this year.

The Office of Financial Research was established as part of the Dodd-Frank Act to serve as an independent research arm of the Financial Stability Oversight Council aimed at detecting sources of risk to the broader financial system. The Trump administration sought to fold the agency under the Treasury Department, and cut its budget and staff. The OFR's move to increase its visibility into the repo market could be the beginning of the Biden administration's attempt to reinvigorate the agency. 

The OFR will take comment on the proposed rule for 60 days after its publication in the Federal Register.

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