OFR Mandates Reporting of Uncleared Repos
Commentary by Steven Lofchie
The Treasury's Office of Financial Research ("OFR") adopted a rule to require certain financial service firms to report data on non-centrally cleared bilateral transactions ("NCCBR") in the repurchase agreement ("repo") market.
The rule requires daily reporting to OFR by certain brokers-dealers, banks, advisers and other financial companies with large exposures to NCCBR. Reporting is required by financial companies that fall within either of two categories:
- Category 1: (i) a securities broker-dealer or government securities broker-dealer (ii) whose average daily outstanding commitments to borrow cash and extend guarantees in NCCBR transactions with counterparties over all business days during the prior calendar quarter is at least $10 billion, and
- Category 2: (i) any other financial company (ii) that has over $1 billion in assets or assets under management and (iii) whose average daily outstanding commitments to borrow cash and extend guarantees in NCCBR transactions, including commitments of all funds for which the company serves as an investment adviser, with counterparties that are not broker-dealers or government securities broker-dealers over all business days during the prior calendar quarter is at least $10 billion.
(Note that while the requirement to report is based on the size of a firm's cash lending in the form of repo, a firm that is subject to the requirement must report both repos and reverse repos. OFR said that securities lending is outside of the scope of the rule, as well as certain transactions in connection with mortgage loans.)
OFR intends to consider a financial company to have assets or assets under management exceeding $1 billion if the company meets one or more of the following criteria:
- if the firm is an SEC-registered investment adviser that manages $1 billion or more;
- if the firm files a required disclosure of its balance sheet with a federal or state financial regulator and has more than $1 billion in assets under any such disclosure;
- if the firm discloses its assets to investors or creditors in audited financial statements, and has more than $1 billion in assets under that disclosure;
- if the firm has disclosed assets in filings with the Internal Revenue Service and has more than $1 billion in assets under that disclosure.
The rule establishes 32 specific data elements required to be reported. OFR said that collected data "will be used to support the work of the Financial Stability Oversight Council, its member agencies, and OFR to identify and monitor risks to financial stability."
The rule will become effective 60 days after publication in the Federal Register. The compliance date will be 150 days after that for Category 1 reporters and 270 days after that for Category 2 reporters.
Commentary
This significant rulemaking has largely flown under the radar, likely because financial service companies have been focused on the SEC's new clearing requirements, among others.
It is as if the U.S. government has no sense of, or regard for, the burdens that it is imposing on the financial industry. With new requirements from T+1 settlement, to central clearing, to reporting of securities lending transactions, to this new requirement to report repos, one is left to wonder how far it can go before the sheer volume of data required as to an activity substantially diminishes the number of firms conducting the activity.