A Broker-Dealer Has Engaged In A Reverse Repurchase (Repo) Agreement. How Was This Done

27. listopadu 2020 | Vít Zemčík | Nezařazené | Sdílet na Facebooku

Among the instruments put in place by the Federal Reserve System to achieve its monetary policy objectives is the temporary addition or subtraction of reserve assets through pension and reverse pension transactions on the open market. These transactions have short-term effects and self-return on bank reserves. Although this press release does not address all the comments, the opinions on publication 34-23602 have been examined in detail by the Commission and, if necessary, included in the amendments adopted today by the Commission. In addition, a summary of the comments was prepared and available in public file S7-21-66. The advice received by the Commission on the proposed amendments to Articles 17 bis-3 and 17a-13 was generally positive. With respect to rule 15c3-l, the comments suggest that most broker traders adequately protect themselves against the credit risks associated with the back-rest by obtaining securities that go beyond the funds they have renewed under the agreement, but some broker-dealers create leverage by obtaining the use of funds through concerted retirement operations. These broker traders enter into reverse re-eds, receive securities well above the advanced amount, and then sell the securities in repurchase transactions for more than the amount advanced in reverse pension transactions. The net funds received are then used in the broker-dealer`s shop. The very simple but important difference between EQ and reverse rest is the time horizon. QE focuses on long-term permanent OMOs to rebalance SOMA and help the economy adapt, especially after an economic or financial crisis. On the other hand, reverse deposits are part of the temporary OMOs that contribute to the maintenance of the target rate set by the Fed`s open market committee. It meets temporary needs and, according to the Central Bank, does not require a comprehensive asset purchase program.

A pension purchase contract, also known as repo, PR or Surrender and Repurchase Agreement, is a form of short-term borrowing, mainly in government bonds. The distributor sells the underlying guarantee to investors and, by mutual agreement between the two parties, buys it back shortly thereafter, usually the next day, at a slightly higher price. Between 2008 and 2014, the Fed introduced quantitative easing (QE) to stimulate the economy. The Fed has built up reserves to buy securities, which has significantly increased its balance sheet and the supply of reserves to the banking system. As a result, the pre-crisis framework was no longer working, so the Fed moved to a „broad reserve“ framework with new instruments – interest on excess reserves (IORR) and overnight deposits (ONRRP), the two interest rates that the Fed itself sets – to control its main short-term interest rate. In January 2019, the Federal Reserve`s open market committee – the Fed`s policy committee – confirmed that it „intends to continue to implement monetary policy in a regime where a sufficient reserve offer will ensure that control of the level of the Federal Funds and other short-term interest rates is primarily through the setting of interest rates managed by the Federal Reserve and in which active management of the federal reserve reserve is not necessary.“ When the Fed ended its asset buyback program in 2014, the supply of excess reserves in the banking system began to shrink.

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