TaskForceonTriPartyRepoInfrastructure

PaymentsRiskCommittee

Report
May17,2010

The Task Force on TriParty Repo Infrastructure was formed in September 2009 under the auspices of the
PaymentsRiskCommittee,aprivatesectorbodysponsoredbytheFederalReserveBankofNewYork.TheTask
Forcemembershipincludesrepresentativesfrommultipletypesofmarketparticipantsthatparticipateinthetri
party repo market, as well as relevant industry associations. Federal Reserve and SEC staff participated in
meetingsoftheTaskForceasobserversandtechnicaladvisors.

TriPartyRepoInfrastructure

TaskForceReport

TableofContents
Section1:
Section2:
Section3:
Section4:
Section5:
Section6:
Section7:
Section8:
Section9:
Section10:
Section11:

IntroductionandSummary...................................................................................................... 3
SummaryListofTaskForceRecommendations.......................................................................11
Background ............................................................................................................................14
OperationalArrangements .....................................................................................................15
DealerLiquidityRiskManagement .........................................................................................19
MarginingPractices................................................................................................................21
ContingencyPlanning .............................................................................................................25
Transparency .........................................................................................................................28
Assessment ............................................................................................................................30
NextSteps..............................................................................................................................33
Annexes .................................................................................................................................34

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Section1: IntroductionandSummary

Inthefallof2009,toaddressthesystemicriskthathadbecomeevidentduringthefinancialcrisis,theFederal
Reserveaskedmarketparticipantstoreviewandmakerecommendationsregardingopportunitiesfor
improvementtothetripartyrepoinfrastructure.

TheTaskForceonTriPartyRepoInfrastructurewasformedandthisReportcontainsitsfindingsand
recommendations.TheReportandtheworkunderlyingithavebeendevelopedthroughthejointeffortofalarge
numberofmarketparticipants,representingmultipletypesoffinancialinstitutionsthatparticipateinthetriparty
repomarket.TheworkoftheTaskForcewasthesubjectofaworkshopinFebruary2010attendedby
representativesfrommorethan100differentorganizations.

FederalReserveandSECstaffattendedTaskForcemeetingsandprovidedclarificationofrelevantpolicyconcerns
andpositions.However,itisimportanttomakeclearthattheconclusionsoftheTaskForceareitsown.No
endorsementofitsconclusionshasbeensoughtorreceivedfromanyregulatoryauthority.TheTaskForceis
awareofandsupportstheFederalReservessimultaneousissuanceofaWhitePaperthatprovidesitsperspective
ontheissuescoveredintheTaskForceReportandrequestspubliccomment.

Itisimportanttoemphasizethatthetripartyrepomarketandthemarketsfortheunderlyingcollateralare
dynamic.TaskForcemembersarecommittedtoongoingindustryassessmentoftheissuesaddressedinthis
Report.

DescriptionofTriPartyRepoMarket

Thetripartyrepomarketislargeandimportant,butnotverywellunderstood.Itrepresentsasignificantpartof
theoverallU.S.repomarket,inwhichmarketparticipantsobtainfinancingagainstcollateralandtheir
counterpartiesinvestcashsecuredbythatcollateral.LargeU.S.securitiesfirmsandbanksecuritiesaffiliates
financealargeportionoftheirfixedincomesecuritiesinventories,aswellassomeequitysecurities,viathetri
partyrepomarket.Thismarketalsoprovidesavarietyoftypesofinvestorswiththeabilitytomanagecash
balancesbyinvestinginasecuredproduct.Thetripartylabelreferstorepotransactionsthatsettleentirelyon
thebooksofoneoftwoClearingBanksintheU.S.market:BankofNewYorkMellon(BNYM)andJPMorgan
Chase(JPMC).TheClearingBankisthusathirdpartyinvolvedintherepotransactionbetweenaDealer(party,
notnecessarilyaBrokerDealer,borrowingcashagainstsecuritiescollateral)andaCashInvestor(partylending
cashagainstsecuritiescollateral). 1

Theattractivenessofthetripartyrepomarketisdrivenbythetreatmentofrepurchasetransactionsin
bankruptcy,theuseofsecuritiesascollateral(includingdailymarginingandhaircuts),andthecustodianservices
oftheClearingBankswhichprovideprotectionsthatdonotexistforbilateralrepoinvestorsorunsecured
creditors.Asaresult,theU.S.repomarketcontributessignificantlytotheliquidityandefficiencyoftheU.S.
TreasuryandAgency(includingAgencyMBS)securitiesmarkets,whichcollectivelymakeupapproximately75%of
thetotalcollateralintheU.S.repomarket.TheimportanceoftheU.S.repomarketisunderscoredbythefactthat
itisthemarketinwhichtheFederalReserveoperationallyimplementsU.S.monetarypolicy.

Thetripartyrepostructuredevelopedinthemid1980sinresponsetothedesirebyCashInvestorstohave
collateralheldbyathirdpartyagent.ThetripartymarketcontinuedtogrowastheClearingBanksinvestedin
infrastructureadvancementsthatallowedDealersandCashInvestorstooptimizetheiruseoftheplatform.At
peaklevelsin2008,over$2.8trillioninsecuritieswerebeingfinancedthroughtheU.S.tripartyrepomarket.The
U.S.repomarketingeneralandthetripartyrepomarketinparticularhaveprovidedimportantbenefits(e.g.
flexibilityandreducedfundingcostsduetocreditprotectionsandoperationalefficiencies)tothefinancialsystem

Forclarityandconsistency,thisReportusesthecapitalizedtermsClearingBank,Dealer,andCashInvestorthroughouttheReportto
refertothesethreepartiestoatripartyrepotransaction.

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andhavehelpedtoreducethecostofborrowingfortheU.S.Treasury,therebyloweringdebtservicecostsborne
bytaxpayers.2

Atseveralpointsduringthefinancialcrisisof20072009,thetripartyrepomarkettookonparticularimportance
inrelationtothefailuresandnearfailuresofCountrywideSecurities,BearStearns,andLehmanBrothers.The
potentialforthetripartyrepomarkettoceasefunctioning,withimpactstosecuritiesfirms,moneymarketmutual
funds,majorbanksinvolvedinpaymentandsettlementsglobally,andeventotheliquidityoftheU.S.Treasuryand
Agencysecurities,hasbeencitedbypolicymakersasakeyconcernbehindaggressiveinterventionstocontainthe
financialcrisis.

SummaryofRecommendations

Basedonitsanalysis,theTaskForceidentifiedthefollowingareaswhereimprovementsareneeded:

OperationalArrangementsLargelytoobtainoperationalefficiencies,currentarrangementsincluding
thedailyunwindofalltransactionsregardlessoftermrequiremassiveamountsofintradaycreditto
beprovidedbythetwoClearingBanks.Thelackofclearunderstandingconcerningtheultimate
allocationofcreditandliquidityrisksamongrepomarketparticipantsweakenedincentivestomanage
andconstrainthoserisks.

DealerLiquidityRiskManagementSomeDealersdidnotproperlyanticipatethepotentialforsecured
financingtobeunavailable,evenforhighqualitycollateral.SomeDealersbecameexcessivelyrelianton
shorttermrepofinancing,especiallyinregardtocollateraltypesthatwereorbecameilliquidandsubject
tovaluationuncertainty,contributingtogreaterleverageinthesystem.

MarginingPracticesMarketparticipantsinmanycasesdidnotanticipatetheextenttowhichmarket
conditionscouldworsenanddidnotsetmarginsaccordingly,leadingtoprocyclicalincreasesinthose
marginswhenconditionsdidworsenduringthecrisis.MostCashInvestorsdidnotanticipatethe
potentialforlossesascollateralpricesdeclined.

ContingencyPlanningInmanycases,CashInvestorswereunpreparedtocopewiththeconsequencesof
aDealerdefault,inparticularthepotentialneedtomanageandliquidatecollateralsecuringadefaulted
repoposition.Insomecases,CashInvestorsfinancedassetsthattheywouldnotnormallyholdoutright.

TransparencyTherewasinsufficienttransparencywithrespecttomanyaspectsofthetripartymarket,
includingitsaggregatesizeandcomposition,theextentofconcentrations,andtypicallevelsofmargin.
Thiscontributedtothebuildupofexposuresandthelackofpriorconcertedactiontoaddresstheissues
identifiedinthisReport.

ThedetailedrecommendationscontainedinthemainbodyoftheReportaddressalloftheseareas.

OperationalArrangements

Firstandforemost,theTaskForcehasfocusedonthespecificactionsneededtofundamentallystrengthenthe
operationalarrangementsattheheartofthetripartyrepomarket.Theseactionsarenecessarytoreducethe
marketsrelianceonintradaycreditprovidedbytheClearingBanksandclarifythecreditandliquidityrisksborne
bymarketparticipants.Substantialefforthasbeenundertakentoidentifytheprecisestepsnecessaryandthekey
dependenciesinvolved.Tangiblestepshavebeentakenandintradayexposuresarelowerthanattheoutsetof
theTaskForceswork.Thepercentageoftripartyrepotradesunwoundonadailybasisdecreasedanaverageof

BenefitsofthetripartyrepomarketarediscussedintheFRBNYWhitePaperontheTriPartyRepoInfrastructureReformTaskForce.

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10%fromSeptember2009toMarch2010. 3

TheTaskForcebelievesthattheobjectiveshouldbethepracticaleliminationofintradaycreditprovidedbythe
ClearingBanks,definedbytheTaskForceasapointbeyondwhichtheresidualamountsofintradaycredit
extensionsarebothsmallandcanbegovernedbytransparentbilateralarrangements,knowninadvanceto
participants.Thekeyoperationaladvancementneededtoachievethisobjectiveisautosubstitution,whichwill
allowfortheautomatedsubstitutionofsecuritiescollateralsupportingatripartyrepotransaction,whilethat
transactionremainsinplace.BothClearingBankshavecommittedtoimplementthisfunctionalitybyFebruary
2011.TheTaskForcebelievesachievementofthepracticaleliminationobjectivecanandshouldbeachieved
withinsixmonthsfollowingtheimplementationofautosubstitution,implyingatargetdateofmidyear2011.

AlongsidethisefforttoradicallyreducetheamountofintradaycreditprovidedbyClearingBanks,theTaskForce
believesitiscriticaltoreinforcethatCashInvestorsareatriskiftheirrepocounterpartydefaults.Clarityinthis
respecthelpstoensurestrongincentivestomitigaterisksandtoundertakeappropriatecontingencyplanning.

DealerLiquidityRiskManagement

Tripartyrepoactivitymustbeanessentialfocusforliquidityriskmanagement.Dealersshouldnotassumethat
securedfinancingisinherentlystable.SinceCashInvestorsareatriskiftheDealerdefaults,Dealersshould
realizethatsomeCashInvestorsmayreduceand/oreliminatefundingasthecreditqualityoftheDealer
deteriorates,despitetheexistenceofcollateral.Assuch,Dealersshouldaccountforthelossofsecuredfunding
withintheirliquidityriskmanagementplansandliquiditystresstests.Dealerliquiditybuffersshouldbesized
accordingly.Hadsuchanapproachbeeninplaceconsistentlyacrosstheindustryduringthecrisis,itismuchmore
likelythatilliquidcollateralwouldhavebeenmatchedbyacorrespondingliquiditybuffer,limitingthepotential
systemicimpactofthelossofthatfinancing.

Inaddition,Dealersshouldlengthenandstaggerthematurityprofileoftheirfinancing,seektocombineshort
termandlongtermfinancingwiththesamecounterpartyandshouldcontinueexploringalternativemechanisms
thatmaybeabletoachievemoredurablefinancingofcertaintypesofsecurities.TheTaskForcesupportsthe
increasedemphasisonliquidityriskmanagementbysupervisorsandregulators.

Theserecommendationsonliquidityriskmanagementechothoseofmanyotherreportsandpapersanalyzing
aspectsofthefinancialcrisis.TheTaskForcebelievesthattherecommendationsinthisareahaveparticular
relevancefortripartyrepotransactions.

MarginingPractices

Marginingpracticesmustbebroadlystrengthenedinthewakeofthecrisis.TheReportoutlinesanumberof
marginingbestpracticesbutstopsshortofrecommendingonespecificapproach.Marketparticipantsshould
undertakestatisticalanalysisandstresstestingofcollateralpricemovementsthatallowsthemtoassessthe
potentialforlossesatdifferentlevelsofmarginsandtomakedecisionsbasedontheirappetiteandcapacityto
absorblosses.CashInvestorsshouldseekinformationthatallowsthemtoassessthepotentialconcentrationof
repocounterpartieswithrespecttoaparticulartypeofsecurity;wheresuchinformationisnotforthcoming,they
shoulduseaggregatemarketinformationand/ormakeconservativeinferences.

Marginprocyclicalityreferstotheprocessbywhichmarginlevelsarereducedingoodtimesandincreasedinbad
times.Procyclicalitycannotbefullyeliminated,sincequantitativemeasuresusedtoguidemarginlevelsfluctuate
overtime.Nevertheless,improvementscanbemade.Theapproachtomarginingshouldbeunderstoodacross
marketparticipants.Marginagreementsshouldavoidprecipitousandunanticipatedincreasesinmargins.
Marginsshouldbesetinaccordancewithregulatoryliquidityriskmanagementandmarginriskmanagement
standards.Theregularpublicationofmarginlevelsinthetripartyrepomarketandqualitativesurveysofcredit

FiguresarebasedonaggregatesprovidedbytheClearingBanks.

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terms,asproposedinarecentBISreportonmarginrequirementsandhaircuts,canaidmarketparticipantsin
settingappropriatemarginlevels.

ContingencyPlanning

CashInvestorsshoulddevelopliquidationplansforthemanagementandliquidationofrepocollateralinthe
eventofaDealerdefault.Theseplansshouldcoverbothpracticalaspectssuchascustodialarrangements,aswell
asstresstestsofpotentiallossesduetocollateralpricemovementsandstresstestsofpossibleliquidityneeds.
ExplorationofadditionalliquiditytoolsandmechanismsbyCashInvestorsshouldalsobeconsidered.Cash
Investorsshouldregularlyreviewtheirliquidationplanswiththeirseniormanagementandboardsasappropriate
dependingonthenatureoftheorganization.

CashInvestorsshouldbeabletodemonstratethatpotentialstressscenariosontheirsinglelargestrepo
counterpartywillnotleadtodestabilizinglosses,evenwhenassociatedcollateralvaluationsaresubjectedto
reasonablyseverestresstests.

Additionally,DTCCand/orotherinterestedprovidersshouldexplorethedevelopmentofacollateralliquidation
managerservicethatwouldbemadeavailabletoabroadrangeofmarketparticipantsonavoluntarybasis,as
wellastoolsthatwilllegallysupportoffsettingofsecuredexposuresrelatedtothedefaultingparty.

ImpedimentstotherapidinitiationofliquidationplansbyCashInvestorswouldincreaseuncertaintyandsystemic
risk.Therefore,theTaskForcebelievesthatSIPC(SecuritiesInvestorProtectionCorporation)shouldagreenotto
imposeastayonrepocounterpartiesexercisingtheircontractualremedies.Thisisconsistentwiththeapproach
thatSIPChastakeninpriorDealerdefaults.

Transparency

Thetripartyrepomarketrequiresgreatertransparency.TheTaskForcehasworkedcloselywiththeFederal
ReservetodevelopatemplateforregularpublicationofkeyinformationprovidedbytheClearingBanks.Apilot
versionofthistemplatewithactualdataasofApril2010isincludedonthefollowingpageandisdiscussedinthe
Report.Thisshowstheaggregatesizeofthetripartymarket,brokendownbyassetcategory,withassociated
measuresofDealerconcentration.ThesecondtablereportsonmarginhaircutlevelsreportedbytheClearing
Banksforeachassetcategory.MeasuresofDealerconcentrationarealsoincludedonananonymousbasis.

Transparencyofcollateralvaluationisanessentialcomponentofsecuredfunding.Collateralthatisproneto
illiquidityandsignificantuncertaintiesinvaluationaddstosystemicriskwhenfundedintheovernightrepo
market.Marketparticipantsshouldevaluatetheprudenceoffundingthistypeofcollateralintheshorttermrepo
markets.

TheTaskForcewillestablishaworkinggroupofvaluationspecialistsacrosstripartyrepomarketparticipantsto
evaluatecollateralpricingmethodologiesandmakerecommendationsforimprovements,includingthefeasibility
ofsamedaypricing.

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Table1
TripartyRepoStatisticsasofApril9,2010
SeeAnnex3forExplanatoryNotes

CompositionandConcentrationofTriPartyRepoCollateral

Asset Group

ABS(Investmentandnoninvestmentgrade)
AgencyCMOs
AgencyDebentures(includingstrips)
AgencyMBS
CMOsPrivateLabelInvestmentgrade
CMOsPrivateLabelNoninvestmentgrade
CorporatesInvestmentgrade
CorporatesNoninvestmentgrade
Equities
MoneyMarkets
USTreasuriesexcludingstrips
USTreasuryStrips
Other
Total

Collateral Value ($
billions)

Share of Total

41.7
112.7
179.5
584.9
25.2
18.9
79.6
34.7
73.3
27.4
474.4
38.7
19.5
1,710.5

2.4%
6.6%
10.5%
34.2%
1.5%
1.1%
4.7%
2.0%
4.3%
1.6%
27.7%
2.3%
1.1%
100%

Concentration by
Top 3 Dealers

45%
46%
33%
45%
48%
47%
39%
54%
59%
74%
39%
46%
38%

DistributionofInvestorHaircutsinTriPartyRepo

Asset Group

Collateral Value
($ billions)

ABS(IGandnonIG)
AgencyCMOs
AgencyDebentures(includingstrips)
AgencyMBS
CMOsPrivateLabelInvestmentgrade
CMOsPrivateLabelNoninvestmentgrade
CorporatesInvestmentgrade
CorporatesNoninvestmentgrade
Equities
MoneyMarkets
USTreasuriesexcludingstrips
USTreasuryStrips
Other
Total

41.7
112.7
179.5
584.9
25.2
18.9
79.6
34.7
73.3
27.4
474.4
38.7
19.5
1,710.5

Haircuts
10th
Percentile

0%
2%
2%
2%
2%
0%
2%
5%
5%
2%
2%
2%

Median

5%
3%
2%
2%
5%
8%
5%
8%
8%
3%
2%
2%

90th
Percentile

8%
5%
5%
4%
7%
8%
8%
15%
20%
5%
2%
2%

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AssessmentofRecommendationImpact

TherecommendationssummarizedaboveanddetailedintheReportareambitious,farreaching,andwill
substantiallymitigatethesystemicriskpotentialassociatedwiththetripartyrepomarket.

ThroughthepracticaleliminationofintradaycreditextendedbytheClearingBanks,anypotential
threattothesolvencyofeitherClearingBankduetothisexposure,howeverremote,islikewiseremoved.
Thisaloneisasubstantialmitigationofsystemicrisk.

Byclarifyingtheresponsibilityforcreditandliquidityrisksamongtripartyrepoparticipants,incentives
forrobustriskmanagementarestrengthened.
o Goodincentivesworkbestwhensituatedwithinahighlytransparentenvironmentwithwell
articulatedexpectationsandfrequentopportunitiesforeffectivebenchmarkingbyauthorities
withthepowertocompelchangesinbehavior.
o TheTaskForcerecommendationsintheareasofcontingencyplanning,marginpracticesand
valuation,andtransparencyaremeanttoprovidetheseadditionalsupportmechanismsfor
strongriskmanagementpractices.

TheTaskForcesrecommendationstobringgreatertransparencytothetripartyrepomarketviaregular
reportingofvolumes,marginlevels,andrelativeconcentrationsbyassetcategoryandacrossDealerswill
substantiallyenhancetheabilityforsupervisorsandmarketparticipantstoassesstrendsandcall
attentiontoemergingissuesbeforetheybecomesystemicinnature.

TheimplementationbyDealersofstrongerliquidityriskmanagementpractices,asrecommendedby
numerousotherreportsandsupervisoryreviews,hasanumberofimportantbenefitsinregardtotri
partyrepotransactions,andmustproceedhandinhandwiththeotherrecommendationstoreducethe
systemicriskpotential.
o Forexample,feedbackbetweenforcedsalesandassetpricedeclinesandthelossorchangein
thetermsofshortdatedrepofinancingcanbemitigatedeitherbyanextensioninthematurity
ofthatfinancingorbysizingliquiditybufferstoabsorbthelossofrepofinancingonlessliquid
collateral.
o Intheextremecasewheremarketsareunderseverestress,thereisapotentialforasudden
pullbackinrepoavailabilitytobecomeaselffulfillingsolvencyeventastheimpactedDealeris
forcedtoselllargeamountsofilliquidassetsunderextremetimepressure.Thispotentialis
againmitigatedifthepullbackinrepofinancingcanbemetviasaleofhighqualityassetsfrom
theDealersliquiditybuffer.
o ThisstrongerapproachtoliquidityriskmanagementimpliesthatincaseswhereaDealers
defaultisprecededbyaperiodofdeterioration,thereshouldbegreaterscopetoreducethesize
oftherepobookinadvanceofdefaultandthereforetheamountofcollateralthatCashInvestors
wouldneedtoliquidateatthepointofdefault.

TheTaskForcebelievesthatthecombinationofmeasuresitisrecommendingwillreducethescopefor
Dealerstousethetripartyrepomarketasamechanismtofinanceexcessivelevelsofilliquidcollateral.

Inspiteofthesesubstantialimprovements,theTaskForcebelievesitisimportanttobeclearaboutwhatits
recommendationswillnotdo.

Theserecommendationswillnotmaketripartyrepofinancingstableinthefaceofeventsthatgiverise
toconcernswithcounterpartycreditstanding.
o DiscussionswithintheTaskForceemphasizedrepeatedlythatsomeCashInvestorsfocus
principallyonDealercreditquality.AnytimeaDealersfinancialconditionisvisiblyweakened,
tripartyrepofinancingmaybesubjecttowithdrawal.

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Attheheightofthefinancialcrisis,contagionconcernsaffectedcounterpartyriskassessmentsby
manymarketparticipants.
o However,theTaskForcebelievesthatsomeCashInvestorswillbecomemorecomfortablein
relyingontripartycollateralasacreditriskmitigantduetoriskbasedmarginingandimproved
transparency.Thiswillimprovethestabilityofthisfinancing.

ImplementationoftheTaskForcesrecommendationswillnoteliminatethepossibilityofthesaleoflarge
amountsofrepocollateralduetoaDealerdefault.However,theTaskForcerecommendationsmay
changethemannerinwhichastressscenarioinvolvingDealerswouldevolve.
o Improvementsintransparencyandinriskmanagementpracticesbyallparticipants,aswellas
ongoingenhancementstotheregulatoryframework,shouldimprovetheresiliencyofaDealerto
awithdrawalofrepofinancingfollowingaweakeninginitsfinancialcondition.
o Therewillalsobemuchgreaterclarityregardingthestatusofexposuresonanintradaybasisand
importantlywhowillbeartheexposuresintheeventofadefault.

TheTaskForceconsideredandrejectedrecommendingthemandatoryusebyallCashInvestorsofa
singleliquidationagentinsuchcircumstancestoeffectacoordinatedliquidation.
o CashInvestorsrepresentedontheTaskForcewereconcernedthatsuchanapproachwould
resultinsuboptimaloutcomesrelativetoallowingCashInvestorsflexibilityinchoosinghowto
managethissituation.Theybelievedthatamandatoryapproachwouldresultinlessvaluefor
theirconstituents.
o TaskForcediscussionsfocusedontheimportanceofaccesstofundingasthecriticalpre
requisitetoavoidfiresaleimpacts. 4 Centralizingtheliquidationproblemdoesnotaddressthe
underlyingproblemofwheresuchfundingwouldcomefrom.TheTaskForcedidnotbelieveit
wasappropriatetoassumethataFederalReserveorotherofficialliquidityfacilitywouldbe
madeavailabletoacentralizedliquidationagentandthepremiseofthefiresaleconcernis
preciselythatprivatemarketfundingisnotavailable.
o TheTaskForcebelievesthatabetterbalancewillbeachievedbyrecommendingthatCash
InvestorsplaninadvanceforaDealerdefaultandmanagetheirexposurestoindividualDealers
inlightofthepotentialimpactofsuchadefaultontheiroverallportfolioliquidity.

AdditionalConceptsandTopics

TheTaskForcediscussedseveralconceptsthathavebeenputforwardaspossibleideasthatcouldbeconsidered
inthefuture.

Theseincludethefollowingconcepts.
o ALiquidityStabilizationUtility(LSU)thatwouldfunctionasabankwiththeexplicitpurposeof
providingliquidityagainstcollateraltoCashInvestorsafteraDealerdefault.
o CashInvestorsobtainingcommittedlinesofcredit.
o Acentralcounterpartyfacilitythatwouldsubstituteitscreditstandingforthatofindividual
Dealersinthetripartymarket.
o AnEmergencyBankthatatroubledDealercouldtransferitsrepoportfolioto,possibly
supplementedbyanadditionalguaranteefund.

TaskForcediscussionshighlightedanumberofchallengeswitheachoftheseconceptsandaccordingly
theTaskForceisnotendorsinganyoftheseconcepts.

SeeBrunnermeierandPedersen,MarketLiquidityandFundingLiquidity,ReviewofFinancialStudies2009,Vol.22,No.6,pp.22012238,for
aneconomicanalysisofthislinkage.

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Asnotedearlier,theTaskForceisawareandhighlysupportiveoftheFederalReservesplanto
simultaneouslyissueaWhitePaperthatrequestsfurthercommentontheseandanyotherissuesraised
bytheTaskForcesReportandrecommendations.

Conclusion

ThefollowingSectionsoftheReportspelloutthespecificrecommendationsindividuallyandthenaddressthe
issuesandrecommendationsineachareaoftheTaskForceswork.TheTaskForceisconvincedthatthese
recommendationscanandshouldbeimplementedandthattheywillcollectivelymakeamaterialdifferenceinthe
extentofsystemicriskpotentialassociatedwiththetripartyrepomarketinfrastructure.TheTaskForcegreatly
appreciatesthetimeandeffortsofallwhocontributedtoitsdiscussions.

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Section2: SummaryListofTaskForceRecommendations

OperationalArrangementsTheTaskForceRecommendationssetoutthemilestonesfortheindustryaction
plandevelopedandagreedbytheTaskForcetoeliminatetothegreatestextentpossibleClearingBank
extensionsofintradaycreditbyenhancingoperationalarrangementsinthetripartyrepomarket.
Recommendationsareaddressedtoalltripartyrepomarketparticipantsunlessspecified.

1.

Implementoperationalenhancementstoachievethepracticaleliminationofintraday
creditbytheClearingBanks,wherepracticaleliminationisdefinedasapointbeyond
whichtheresidualamountsofintradaycreditextensionsarebothsmallandcanbe
governedbytransparentbilateralarrangements,knowninadvancetoparticipants 5 .

1A.ClearingBankstoprovideprojectplansinrelationtotheirimplementationofrobust
automatedcollateralsubstitution(autosubstitution)capability.

1B.Eliminateremainingsourcesofambiguityorinaccuracyintripartyrepobooking
proceduresandtradecommunicationstotheClearingBanks,includinginformation
relatedtothetermofthetransaction.

2.

30Jun2011

15July2010

31Aug2010

1C.Agreetostandardizedintradaysettlementtime(s)formaturingrepotrades(e.g.,
MorningSettlement,EndofDaySettlement),thatwillbeimplementedfollowingpre
requisiteenhancements(e.g.,autosubstitution).

31Aug2010

1D.Agreesolution(s)forthreeway,realtime,pointoftradeconfirmationsfortriparty
repotransactions,inclusiveofdiscussionswiththirdpartyvendors.

15Oct2010

1E.ClearingBankstocompletedevelopmentofsoftwaretosupportautosubstitution
capabilityandconfirmtimelinesforfullimplementation.

15Feb2011

1F.DealersandCashInvestorstoconfirmthatinternalprocessesrelatedtoallaspectsof
tripartyrepoarepreparedfortheoperationalenhancementsrecommendedinthis
Report.

15Feb2011

1G.Implementmarketwide,threeway,realtime,pointoftradeconfirmation
solution(s)whichmemorializeslegallybindingrepotransactionsenteredinto
betweenCashInvestorsandDealers.

15Apr2011

DealersandCashInvestorstoundertakeregularduediligencereviewsofClearingBanks
thatcover,ataminimum,operationalandcontractualconformity,adherenceto
collateralallocationrules,andcollateralpricingmethodologies.

Ongoing

Marketparticipantsshouldtargetthereductioninintradaycredittobelessthan10%ofaDealersnotionaltripartybook(representingthe
estimatedportionofaDealer'sbookthatreachesfinalmaturityandisnotrolledonagivenday).

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DealerLiquidityRiskManagementTheTaskForceRecommendationssupportotherassessmentsofthe
financialcrisisinemphasizingtheimportanceofstrongerliquidityriskmanagement.

3.

Dealersneedtoincorporatelessonsfromthefinancialcrisisexperiencerelatedtotri
partyrepoinmakingappropriateimprovementstoliquidityriskmanagementand
planning.

Ongoing

4.

Dealersshouldnotassumethatshorttermtripartyrepofinancingwithalloftheir
counterpartiesthroughoutallmarketconditionsisinherentlystable.

Ongoing

5.

DealersandClearingBankstoassessandclarifytermsforthepotentialavailabilityof
securedintradaycreditfacilities(bothdiscretionaryandcommitted)tomitigatethe
liquidityrisksassociatedwithmaturingrepotrades.

15Nov2010

MarginingPracticesTheTaskForceRecommendationssupportabroadstrengtheningofmarginingpractices,
basedontheprinciplesthatmarginsshouldberiskbased,shouldnotbeprocyclical,andshouldbebasedon
objective/transparentcriteria.

6.

7.

CashInvestors,Dealers,andClearingBankstodetermineappropriatecollateralmargins
inlinewiththeprinciplessetoutinSection6ofthisReport,takingnoteofmonthlyTri
PartyRepoStatisticstobepublishedontheFederalReserveBankofNewYorkwebsite.

ClearingBankstocontinuetoshareinformationonintradaymarginmethodologiesand
processeswithrespectiveDealers.

Ongoing

Ongoing

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ContingencyPlanningTheTaskForceRecommendationssupportimprovingthepreparednessofCashInvestors
andthetripartyrepomarkettocopewithaDealerdefault.

8.

CashInvestorstoundertakeregularstresstestsoftripartyrepocounterpartyexposures
thatconsideradefaultofthelargestrepocounterpartytogetherwithpotentialchanges
inthemarketvalueoftheunderlyingcollateral.

Ongoing

9.

CashInvestorstoputinplaceandregularlyreviewcontingencyplansforaDealerdefault
thatcover,ataminimum,aprocessforeffectivelymanagingcollateral,includingaplan
tomanageliquidityandriskexposureduringtheliquidationprocess.

15Jan2011

10. Relevantindustryassociationsinconjunctionwiththeirconstituentsareencouragedto
publishcomprehensiveBestPracticeguidanceforCashInvestors.

30Sep2010

11. DTCCanditsaffiliatestoworkwithothermarketparticipantstomaximizethepotential
foroffsettingofpositionsintheeventofaDealerdefault;DTCCand/orotherinterested
partiescanprovideaviablecollateralliquidationmanagementserviceforthoseCash
Investorswishingtodelegatetheseactivities.

30Nov2010

12. Allmarketparticipantstocontinueexploringadditionalconceptsthathavethepotential
toaddtothestabilityandresilienceoftripartyrepofinancingand/orreducethe
potentialforcollateralfiresalesintheeventofaDealerdefault.

Ongoing

TransparencyTheTaskForceRecommendationsareintendedtoincreasetransparencywithrespecttothesize,
composition,andconcentrationofthetripartyrepomarket,therangeofmarginsapplied,andthevaluation
methodologiesappliedtotheunderlyingrepocollateral.

13. Initiatemonthlypublication,viatheFederalReserve,ofaggregatestatisticsontriparty
repocollateralandCashInvestormarginlevels,withdisclosurebyassetclass,basedon
informationprovidedbytheClearingBanks.(SeeTable1forapilotversion.)

14. TheTaskForcewillestablishaworkinggroupofvaluationspecialistsacrosstripartyrepo
marketparticipantstoevaluatecollateralpricingmethodsandmakerecommendations
forimprovements,includingthefeasibilityofsamedaypricing.

30Jul2010

15Oct2010

15. CashInvestorstoregularlyvalidatetripartycollateralforpricing,appropriateness,and
classification.Dealerstoregularlycomparecollateralmarksontheirownbooksand
recordswithvendorpricesprovidedbytheClearingBanks.

Ongoing

16. DealerstoinformCashInvestorsandClearingBanksincaseswheretheDealersmarks
aremateriallybelowthevendorpricesprovidedbytheClearingBank.

Ongoing

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Section3: Background

TheaccompanyingWhitePaperissuedbytheFederalReserveprovidesadditionaldetailonthehistoryand
mechanicsofthetripartyrepomarket.Accordingly,theTaskForceisnotreplicatingthatmaterialhere.Inthis
sectionwesimplyreviewsomeofthemainpointsnecessaryasastartingpointforfurtheranalysis.

TripartyrepogrewfromitsoriginasafundinginstrumentforU.S.Treasuriestoincludenearlyallsecuritiesheld
byDealers.ThegrowthofthetripartyrepomarketmirroredthegrowthofDealerbalancesheets.Themarket
evolvedfromastrictlyovernightmarkettoincludesignificanttermtrading.

Atpeaklevelsin2008,overUS$2.8trillioninsecuritieswerebeingfinancedthroughtripartyrepotransactions,
manywithveryshortmaturities,andinvolvingthedailytransferofnearlythefullamountofassociatedcashand
securitiesontheaccountsofoneortheotherofthetwotripartyClearingBanks:BankofNewYorkMellon
(BNY)andJPMorganChase(JPM).

IndividualDealers(reposellers/borrowers)routinelyfinancedmorethanUS$100bninsecuritiesviathetriparty
mechanism.ThelargestsinglefirmexposurepeakedatmorethanUS$400bn.Tripartyrepoarrangementswere
atthecenteroftheliquiditypressuresfacedbysecuritiesfirmsattheheightofthefinancialcrisis,especiallyasthe
pricingtransparencyandliquidityofsomeformsoftripartycollateraldeterioratedatthesametimethat
counterpartycreditconcernswereescalating.

CashInvestorsinthetripartymarketincludemoneymarketmutualfunds(2a7funds),securitieslendingagents
(typicallymajorcustodianbanks),andotherinstitutionalinvestorsorfundmanagers(includingcommercialbanks
andcorporatetreasurers)whoseektoinvestcashshortterm.Therepotradescanbeovernighttrades,term
tradeswithsomefixedfuturematuritydate,oropentradeswhichremaininplaceuntiloneortheotherparties
electsnottorenewthetrade.

Atitsheart,thetripartyrepomarketmatchesalargedemandonthepartofCashInvestorsforsafe,flexible,
shortterminvestmentswiththedesireforbanksandsecuritiesdealerstofinancetheirsecuritiesinventoriesona
moreefficientandreliablebasisthantheycanborrowonanunsecuredbasis.Thetreatmentofrepurchase
transactionsinbankruptcy,theuseofsecuritiesascollateral(includingdailymarginingandhaircuts),andthe
custodianservicesoftheClearingBanksprovideprotectionstorepoCashInvestorsthatdonotexistforunsecured
creditors.

ThismechanismforfinancingDealersecuritiesinventoriesgrewduringthelastdecadetobecomeasubstantial
portionoftotalDealerbalancesheetliabilities.Forreference,thedailyvolumeoftripartytransactionsisa
multipleoftheentirefinancialcommercialpapermarket.Dealerscollectivelybelievedthatthismethodof
financingwouldbemorestablethanunsecuredfinancingintheeventofmarketorfirmspecificstressevents
giventheprotectionsdescribedabove,inparticularthefactthattherepoCashInvestoriscollateralized.

Currently,thebulkoftheentiresecuredexposurepassesfromtheCashInvestorstotheClearingBanksintradayto
provideoperationalefficiency.Thebulkoftripartyrepotransactionscurrentlyareunwoundvs.cashonthe
ClearingBanksbookseachday(normallyaround8am),withnewallocationseffectedonthebooksofthe
ClearingBanksbeginningintheafternoon.Asaresult,theamountofsecuredcreditandmarketriskexposure
bornebythetwoClearingBanksinthenormalcourseofbusinesstodayisextremeandthereisuniformsupport
fromalltripartyrepomarketparticipantsontheimportanceofreducingthisintradayexposureasthetoppriority
fromasystemicriskperspective.

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Section4: OperationalArrangements

TheTaskForceworkstreamcoveringoperationalarrangementsfocusedfirstonidentifyingtheprocessesthatmust
beenhancedtoenablelargereductionsinintradaycreditextensionsbytheClearingBankswithouthinderingthe
tradingandfinancingfunctionalityassociatedwiththecurrentplatform. 6 Threecoreprocesseswereidentified.

TradeBookingProcess:Somemarketparticipantsdonotsubmitcompletetradeinformationtothe
ClearingBanksonatimelybasisaftertradeexecution.Bookingandsubmissionflawsaretworeasons
ClearingBanksreturncollateraltoDealersandcashtoCashInvestorseveryday,evenwhentherepohas
amaturitydatebeyondoneday.

TradeConfirmation:Thereisnoindustrywideformalizedtwoway(DealersandCashInvestors)orthree
way(addingClearingBank)tradeconfirmationpracticeatthetimeoftradeexecution.CashInvestorsand
Dealersgenerallyconfirmtheirtradesbilaterally.ThetimelyreportingoftradeinformationtoClearing
Banksgivesthemmoreinformationforbetterriskmanagement.

IntradayCollateralManagement:InmosttripartyrepotradestheClearingBankreturnscollateraltothe
DealerandcashtotheCashInvestoreveryday,evenfortermrepotransactions.Thispracticeiscalled
theunwind.ThepurposeoftheunwindisoperationalinthatitgivesDealersaccesstothecollateral
fordailysettlementactivity.TheresultisthatmostofthesecuredexposureistransferredfromtheCash
InvestorstotheClearingBanksuntilcollateralisreturnedtotheCashInvestorlaterinthebusinessday,
resultinginexcessive,albeitsecured,intradayexposuresforthetwoClearingBanks.

TheTaskForceconcludedthatenhancementsintheseareas,inparticularthedevelopmentofrobustautomated
intradaycollateralsubstitution(autosubstitution)capability,togetherwithimplementationofnewstandardized
settlementtimesformaturingrepotrades,shouldenableverysubstantialreductionsinintradayexposures
withoutlossoffunctionality.Accordingly,theTaskForcehasdevelopedandagreedonanambitiousindustry
actionplantoachievethisobjective.Thisactionplanculminatesinthepracticaleliminationofintraday
exposurebythemiddleofnextyear.

Recommendation1.Implementoperationalenhancementstoachievethepracticaleliminationofintraday
creditbytheClearingBanks,wherepracticaleliminationisdefinedasapointbeyond
whichtheresidualamountsofintradaycreditextensionsarebothsmallandcanbe
governedbytransparentbilateralarrangements,knowninadvancetoparticipants 7 .
(30Jun2011)

TheuseofthepracticaleliminationstandardasdefinedinthisRecommendationreflectsthedesiretomeasure
progresstangiblyandquantitatively,whilealsorecognizingthatzerointradaysecuredfinancingisnotarealistic
targetinthistimeframe.

ClearingBankshaveemployedtwotacticalsolutionstoreduceintradayexposuressinceDecember2009:
Byeliminatingtheunwindofselectedtermrepos,participatingDealerskeepspecifictermloansfullycollateralizedandperformaminimal
levelofsubstitutionincoordinationwiththeClearingBanks,
Bydelayingthemorningunwindprocess,Dealersreducedeliveryobligationsandcanthenreallocatetradestoeliminateintraday
exposure.
Participationhasbeenbroadbasedandhasachievedanapproximate$150billionreductioninthedailyunwindatthetwoClearingBanks.
Marketparticipantsarecommittedtoimplementingtacticalsolutionsuntilthestrategicsolutionisimplemented.Termtradesrepresent10%
40%oftheentiremarket.Goingforward,marketparticipantscanreduceintradayexposurebyreplacingovernightmaturingtradeswithterm
maturingtradesandbysegregatingovernightmaturingtradesfromopenmaturities.

7
Marketparticipantsshouldtargetthereductioninintradaycredittobelessthan10%ofaDealersnotionaltripartybook(representingthe
estimatedportionofaDealer'sbookthatreachesfinalmaturityandisnotrolledonagivenday).

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TheactionplanconsistsofadditionalintermediatemilestonesthattheTaskForcebelievesarenecessaryto
achievesuccesswithrespecttotheoverallobjective.Theseareasfollows.

TradeBookingProcess

Animportantprerequisiteformoreambitiouschangesistofirstensureashighalevelofaccuracyaspossiblein
therecordingandcommunicationofallrelevanttradedetails.

Recommendation1B.Eliminateremainingsourcesofambiguityorinaccuracyintripartyrepobooking
proceduresandtradecommunicationstotheClearingBanks,includinginformation
relatedtothetermofthetransaction.(31Aug2010)

TradeConfirmation

Athreewayconfirmationprocesswillimprovethequalityandtimelinessoftradeinformationreceivedbythe
ClearingBanks.Errorswillbecaughtandresolvedearlierintheday.Sincemosttradesareexecutedearlyinthe
morning,ClearingBankswillhavetheessentialfundinginformationnecessarytomakeaninformeddecisionabout
extensionofintradaycredittoindividualDealers.TheTaskForcesupportstheuseofopenarchitectureand
standardmessagingprotocolsinregardtopossibletradeconfirmationsolution(s).

Recommendation1D. Agreesolution(s)forthreeway,realtime,pointoftradeconfirmationsfortripartyrepo

transactions,inclusiveofdiscussionswiththirdpartyvendors.(15Oct2010)

Recommendation1G.Implementmarketwide,threeway,realtime,pointoftradeconfirmationsolution(s)
whichmemorializeslegallybindingrepotransactionsenteredintobetweenCash
InvestorsandDealers.(15April2011)

Itisessentialthatallrepoparticipantsagreethattripartyrepotradesarelegallybindingagreementswhichare
memorializedatthepointofconfirmation.SeeAnnex1fortheMinimumParametersRequiredforTrade
MatchingdevelopedbytheTaskForce.

IntradayCollateralManagement

Therearetwoprimaryelementstotheoperationalimprovementsneededinintradaycollateralmanagement.
First,theClearingBankswillneedtodevelopandproviderobustautosubstitutioncapabilitythatallowsDealersto
accessandsettletradesinvolvingcollateralbeingfinancedwithtripartyrepowithoutunwindingtheunderlying
tripartyrepotransaction.Thesecondchangeinintradaycollateralmanagementneededistoestablishagreed24
hoursettlementcyclesthatkeepinvestorscollateralizedandborrowersfundedthroughoutthatperiod,sincethis
willbydefinitionreducetheneedforroutineintradaycreditextensionsbytheClearingBanks.Insum,themodel
thatthiswillsupporthasthefollowingaspectsforeachmajorparticipant.

Dealers
Preservesliquiditybyallowingreadyaccesstoencumberedcollateral
ReducescreditdependencyontheClearingBanksascreditexposureiskeptwithCashInvestors
Minimalimpacttocurrenttradingpracticesasprocessbecomesfullyautomatedandhighlyefficient

CashInvestors
GreatlyreducesunsecureddepositorrisktotheClearingBanks
Ensuresappropriatemarginedcollateralizationwitheligiblesecuritiesandcashthroughouttheday

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ClearingBanks
GreatlyreducestheoutsizedintradaycreditextensiontoDealersresultingfromthedailyunwind
AllowsforgreaterclarityincreditlinesandcreditrelationshipswithDealers

KeymilestonesinrelationtotheClearingBankimplementationofautosubstitutionareasfollows.

Recommendation1A. ClearingBankstoprovideprojectplansinrelationtotheirimplementationofrobust
automatedcollateralsubstitution(autosubstitution)capability.(15Jul2010)

Recommendation1E.ClearingBankstocompletedevelopmentofsoftwaretosupportautosubstitution
capabilityandconfirmtimelinesforfullimplementation.(15Feb2011)

Thesecondchangeinintradaycollateralmanagementthatisneededistoestablishagreedsettlementtimesthat
keepCashInvestorscollateralizedandborrowersfundedthroughouttheperiod,sincethiswillbydefinitionreduce
theneedforroutineintradaycreditextensionsbytheClearingBanks.

Recommendation1C. Agreetostandardizedintradaysettlementtime(s)formaturingrepotrades(e.g.,
MorningSettlement,EndofDaySettlement),thatwillbeimplementedfollowingpre

requisiteenhancements(e.g.,autosubstitution).(31Aug2010)

Althoughthenewstandardizedsettlementtimeswillnotbeimplementedrightaway,itisimportanttoreach
agreementonthemwithinthenextfewmonthsinordertoplanotherelementsaroundthem.Inthiscontext,itis
alsocriticaltorecognizetheagreementbytheLegalSubcommitteeregardingconfirmation(viathethreeway,
pointoftradeconfirmation)ofthelegallybindingrepotransactionsenteredintobetweenDealersandCash
Investorsatthepointoftrade,asthiswillcreateamoresolidfoundationwithinwhichtheindustrywilloperate.
Marketparticipantsshouldensurethatlegaldocumentationisappropriatelysupportiveofthisobligation.

Thefollowingpointssummarizethecurrentthinkinginregardtopotentialstandardizedsettlementtimes,taking
intoaccounttheworkdonebytheTaskForceslegalworkstream,assummarizedinAnnex2oftheReport.These
conceptswillbediscussedfurtherandvettedacrosstheindustrypriortofinaldecisionsbytheTaskForce.

Marketparticipantsshouldweighthemeritsofdevelopingastandardsettlementformaturingtransactions
duringtheafternoon,unlessthetwocounterpartiesotherwiseagreetoamorningsettlement.
o Thebenefitsofatwicedailysettlementperiodforfinalmaturityoftransactionsaresignificant;itwould
provideadditionalopportunitiestoreduceintradaycreditextensionsbytheClearingBanks,itwould
allowadditionaltimeforCashInvestorstoprovidefinalallocationaccountinformationtotheDealersand
ClearingBanks,anditwouldkeepCashInvestorsfullysecuredthroughthe24hourcycle.
o Thesebenefitsneedtobebalancedwiththechallengesofintroducingasecondsettlementperiod,
includingoperationalcomplexityduringacompressedendofdaytimeframe,aswellastheinabilityof
CashInvestorstotakepossessionand/orliquidatecollaterallateintheday.

AsagreedbytheLegalSubcommittee,alltradesenteredintobetweenaCashInvestorandaDealer,including
blocktrades,representlegallybindingcommitmentstoprovidefinancingfromCashInvestortoDealerwhich
ismemorializedviathethreewayconfirmation.Otherwise,thissolutionwillnoteffectivelymitigateintraday
exposure.(SeeAnnex2).

ItisincumbentuponCashInvestorstodeliversubaccounttradeinformationasearlyaspossibleduringthe
daytotransfertheriskofDealerdefaulttotheappropriatespecificentity(s)providingfinancingtotheDealer.

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CashInvestorsandDealersshouldseektoexecuteandconfirmrepospriorto10a.m.Notethatlaterday
tradesshouldstillbeabletobesettled;howeverifbothpartiesagreetoatransactioninthemorningitshould
becommunicatedthroughtheconfirmationprocessimmediatelysotheClearingBankhasanappropriate
assessmentofdailyfinancingactivity.

ReadinessforChange

Theoperationalchangesdiscussedherewillrequirealargeamountofcoordinationandcooperationtoachieve,
especiallyintherapidtimeframeenvisioned.ClearingBankshaveamajorroletoplayinlayingouttheirplansand
workingcloselywiththeircustomers.CashInvestorsandDealersalsoneedtoworkconstructivelyand
aggressivelytobesuretheyarereadyforthesechanges.

Recommendation1F. DealersandCashInvestorstoconfirmthatinternalprocessesrelatedtoallaspectsoftri

partyrepoarepreparedfortheoperationalenhancementsrecommendedinthisReport.
(15Feb2011)

TheTaskForcehasidentifiedthefollowingareasformarketparticipantstoconsiderastheyprepareforthese
changesinoperationalarrangements.

Extensiveoperationalandtechnologychangesarerequiredofallpartiestosupportasignificantincrease
inthelockupofcollateralfromthecurrentmodel.
Substitutions,accounting(includingthecalculationandpaymentofinterest),collateralvaluation
methodologies,andrelatedprocessesneedtobeadaptedtothenewmodel.
CashInvestorsandDealersrequirerealtimeinformationofthecompositionofcollateralsecuringaterm
tradeatanypointduringtheday.
DefiningcollateralsubstitutionprocessforinterbankGCFRepocollateralpledgedtotermtrades.
EfficientlytargetingintradaysecuritiesandcashsubstitutionstominimizeCashInvestors'unsecured
depositorexposuretotheClearingBanks
Atransparentprocessformanagingfailswillneedtobedevelopedpendingagreementonnew
standardizedsettlementtimes.

Impact

Whencollectivelyimplemented,thenewoperationalarrangementswilldrasticallyreducetheneedforintraday
creditfromtheClearingBanks.EstimatesfromClearingBanksareanimmediate1040%reductioninintraday
credittoDealersfromtacticalsolutionsalreadyunderway,withreductionstargetedat90%ormorewhenthe
strategicsolutionsareinplace.

OngoingDueDiligence

Inadditiontotheactionplandevelopedtosupportimprovementsinoperationalarrangements,theTaskForce
supportsbothDealersandCashInvestorsreviewingtheoperationalpracticesoftheClearingBanksonaregular
basis.Thisshouldincludemonitoringcollateralallocationstoensurethatcollateralhasbeenproperlyallocated
andcheckingthepriceoftheallocatedcollateral.

Recommendation2.

DealersandCashInvestorstoundertakeregularduediligencereviewsofClearingBanks
thatcover,ataminimum,operationalandcontractualconformity,adherenceto
collateralallocationrules,andcollateralpricingmethodologies.(Ongoing)

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Section5: DealerLiquidityRiskManagement

Dealerliquiditycontingencyplansandliquidityriskmanagementpracticesprecrisishadevolvedpredominantly
duringstableenvironmentsandinmanycaseswerepredicatedonshorttermsecuredfundingbeingmorestable
duringtimesofstressthanunsecuredfunding.Theseapproachestoliquidityriskmanagementdidnotsufficiently
appreciatethesensitivityofmanyCashInvestorstocounterpartyconcernseveninthepresenceofhighquality
collateral,thepotentialforabroadpullbackintripartyrepofinancing,andthelossofpricetransparencyand
liquidityforcertaincollateraltypes.

Dealershavetakentheselessonstoheartandhavebeenapplyingthemtotheirliquidityriskmanagement
practices.Thesupervisoryandregulatorycommunityhasalsomadeliquidityriskapriorityissueandhavebeen
drivingfurtherimprovementsthroughproposedregulatorychangesandheightenedsupervisoryreview.Among
theareasofemphasisthathavebeenhighlightedinTaskForcediscussionsarethefollowing.

Improvingliquidityriskmeasurementandreportingcapabilities,withrespecttobothgranularityand
frequencyandthecaptureofinstrumentswithcontingentliquidityimplications.

Undertakingmoresystematicanddetailedliquidityriskstresstestsandusingtheresultstohelpsizemore
robustliquiditybuffers.

Makinggreateruseoftermfundingwhereavailable.Staggeringmaturitiesandcombiningshorttermand
longtermfundingwiththesamecounterpartytomodifyincentivestowithdrawshorttermfunding.

Morerobustgovernanceandincreasedseniormanagementfocus.

LiquidityriskmanagementwasnotintendedtobeaprimaryfocusoftheTaskForce,butisacrucialaspectforthe
analysisofhowfuturestressscenarioscouldevolveandthereforefortheassessmentofsystemicriskinrelationto
tripartyrepoactivity.IntermsofRecommendations,theTaskForcesupportsthebroademphasison
strengtheningliquidityriskmanagementpracticesandwishestohighlighttheneedforDealerstoensurethatthe
liquidityriskmanagementaspectsoftripartyrepoactivitiesreceivepriorityattention.

Recommendation3.

Dealersneedtoincorporatelessonsfromthefinancialcrisisexperiencerelatedtotri
partyrepoinmakingappropriateimprovementstoliquidityriskmanagementand
planning.(Ongoing)

Inthecontextofthetripartyrepomarket,thelessonlearnedthatstandsoutthemostistheoverrelianceon
shorttermsecuredfundinganditspresumedstability.DiscussionsintheTaskForceemphasizedrepeatedlythat
manyCashInvestorsfocusprimarilyifnotalmostexclusivelyoncounterpartyconcernsandthattheywillwithdraw
securedfundingonthesameorverysimilartimeframesastheywouldwithdrawunsecuredfunding.

Recommendation4.

Dealersshouldnotassumethatshorttermtripartyrepofinancingwithalloftheir
counterpartiesthroughoutallmarketconditionsisinherentlystable.(Ongoing)

IntradayCredit

Aparticularaspectofliquidityriskinthetripartymarketgoingforwardwillbethetreatmentofmaturingrepos.If
aDealerisunabletorolloverrepofinancingorotherwisefinancethematuringassets,theClearingBankmay
choosenottoallowtherepotomature,meaningtheCashInvestorwillretaintherisk.Dealerswillnaturallybe
eagertopreventeventsfromreachingthispoint,especiallyifitisnotreflectiveofabroaderdeteriorationinthe
Dealerscondition.

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DealersthereforehaveastronginterestinclarifyingthetermsunderwhichClearingBankswouldbewillingto
provideintradaysecuredfinancing,eitheronadiscretionarybasisorpossiblyonacommittedbasis.Clearing
BankshaveaninterestinunderstandingtheassumptionsDealersaremakingwithrespecttopotentialrequestsfor
ClearingBankcreditinastressevent.Bilateraldiscussionstoexplorethesetopicsandaddresstherangeofterms
involved(e.g.,amount,drawdownconditions,maturity,fees,expiration,collateraleligibility,marginlevels)willbe
beneficialinprovidingclaritytobothDealersandClearingBanksaheadoffuturestressevents.

Recommendation5.

DealersandClearingBankstoassessandclarifytermsforthepotentialavailabilityof
securedintradaycreditfacilities(bothdiscretionaryandcommitted)tomitigatethe
liquidityrisksassociatedwithmaturingrepotrades.(15Nov2010)

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Section6: MarginingPractices

Recentmarketeventshavehighlightedseveralissuesrelatedtomarginingpractices.Theseissuesinclude:

MarginLevels:Marginlevelsincertainassetclasseswereinsufficienttocoverthecloseout/liquidation
riskofthesecuritiesheldascollateral.

Valuations:Marketparticipantsdidnotsufficientlyanticipatethepotentialforsometypesofrepo
collateraltolosepricetransparencyandliquidityforextendedperiodsoftime.

MarginingProcessbetweenDealerandClearingBank:TheClearingBankunwindandmarginingprocess
wasnotwellunderstoodbyallDealersandCashInvestors

Duetotheissueshighlightedabove,someCashInvestorswerebecomingmoreexposedtocounterpartycreditrisk
atthesametimethatcounterpartycreditconcernswereescalating.Asaresult,behaviorstartedtotrendcloserto
thebehaviorofunsecuredcreditinvestors,resultinginCashInvestorsexitingtherepomarketordrastically
changingtheircollateralrequirements.Giventheheavyrelianceontherepomarketforfinancing,thispullbackin
fundingandthemeaningfulincreasesinmarginrequirementsinadeterioratingmarketcontributedtosystemic
riskconcerns.

Toaddresstheseissues,theTaskForceinitiatedaworkstreamonmarginingpractices,whichhasdevelopedaset
ofprinciplesforfirmstouseinsettingmargins.TheTaskForcebelievesthatifCashInvestorsandClearingBanks
fullyincorporatetheseprinciplesintotheirmarginprocesses,theresultwillbemorerobust,lessprocyclical,and
moretransparentandpredictablemargins.Inturn,thiswillcontributetothestabilityoftherepomarketinfuture
timesofmarketstress.

ItisimportanttonotethattheTaskForceisnotendorsingstandardizationofmarginingmethodologiesorof
marginlevelsacrossthemarket.TheTaskForcebelievesthemarginingprocessisariskmanagementtool,and
eachinstitutionshouldbeaffordedtheflexibilitytomanagetheirriskinaccordancewiththeirownrisk
managementpolicies,principles,andprocesses.

PrinciplestoConsiderForMarginRequirements

RiskBased
Asvolatilityincreasedthroughout2008,marketparticipantsrecognizedthattheliquidationvalueofthecollateral
receivedmightnotbesufficienttorecover100%oftherepofinancingintheeventofaDealerdefault.TheTask
ForcebelievesthatthisuncertaintycanleadtoinstabilityasCashInvestorsaremorelikelytoexittherepomarket
orexcludebroadassettypesinordertoavoidunsecuredexposureinadeterioratingmarket.

Inhindsightwebelievethatthisuncertaintywaslargelydrivenbyanunderestimationofhowquicklyahealthy
marketcantransitionintoastressedmarketinwhichaDealerscreditqualityandassetliquiditybecomesa
concern.

ThereisbroadagreementwithintheTaskForcethatClearingBanksandCashInvestorsshouldsetmargin
requirementsconsideringthepotentialpricedeclineofthesecuritiesheldascollateralduringaperiodofmarket
stressandvolatilitywhileassumingastrongcorrelationwithaDealersfailuretoperform.Thisriskbasedanalysis
shouldalsoconsider:

Portfolioconcentrationrisks:Aportfolioofdiverseassetsmayperformbetterthanahighlyconcentrated
portfolio.Inotherwords,anincreaseinportfolioconcentrationswillcorrespondtoanincreasein
securityspecific,idiosyncraticgaprisk.

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Liquidationhorizon:Aconservativeliquidationtimehorizonshouldbeassumedtosupportanorderly
liquidationofcollateralandtoaccountforpotentialdelaysinliquidatingaportfolio.Thesedelayscanbe
drivenbypotentialstayperiods(e.g.SIPCStay)orbyassetconcentrations(e.g.asecurityholdingmay
exceedthedailytradedvolume,andthereforemultipledaysmayberequiredforthemarkettoabsorb
theposition),orpossiblyotherfactors.

Implied&historicalassetvolatility:Whencalculatingcounterpartyriskexposure,marketparticipants
shouldcomplementahistoricalvolatilityanalysiswiththeimpliedvolatilityinthemarkets.Thisis
importantsincehistoryisnotalwaysagoodproxyforthefuture.

Stresstesting:Incasesofstablemarketswhereimpliedvolatilityislowandhistoricalvolatility
assumptionshavedecayed,anoverlayofmarketstresstestingtodeterminemarginlevelsiscriticalto
ensurethatalowvolatilityenvironmentdoesnotleadtoprocyclicalbehavior.

ItisimportanttonotethatalthoughtheTaskForceencouragesallmarketparticipantstofullyanalyzeallrisks
inherentinthetripartyrepomarket,itisnotintendedtobeariskfreemarket.Marketparticipantsshouldhave
flexibilitytoscaletheirmargininglevelsupordowninexchangeforincrementalyieldbasedupontheirindividual
riskappetite.Thekeyisformarketparticipantstosizetheirappetiteforunsecuredcreditriskandthenset
assumptionsandmarginsaccordingly 8 .

Granularity
Inordertoproperlyquantifytheliquidationrisk,themarginanalysisshouldbeconductedatleastatalevel
granularenoughtodistinguishtheriskbetweenthevariousassetclasses,creditratings,durations,etc.Asan
example,itmaynotbesufficienttolookatthehistoricalpricevolatilityofCorporateBonds.TheCorporateBond
assetclassisverybroadandincludessubassetclassesthatmayhavedifferentriskandliquidityprofiles.

ByenablingmarginlevelstobesetatamoregranularlevelClearingBanks/CashInvestorswillbeinabetter
positiontounderstand/assesstheriskofcollateralthattheyhold,aswellasensurethatthemarginproperly
coverstheirliquidationrisk.

PeriodicReview
Itisimportanttoreviewthemethodologiesandassumptionsthatareusedinthecalculationonaperiodicbasisin
ordertorecalibratethehaircuts.Althoughtheinitialhaircutshavealreadyassumedastressedscenario,the
recalibrationwillberequiredifchangesinmarketconditionsprovethatvariousassumptionsweretooaggressive
ortooconservative.

Reliable3rdPartyValuations
Collateralizingtripartyrepotradeswithassetsthathavereliable3rdpartyvaluationsisanintegralpartofanyrisk
basedmarginingprocess.ThisisdiscussedfurtherinSection8below.

Practicality
Asacounterbalancetotheprinciplesabove,anymarginingproposalshouldconsiderthepracticalityofthe
calculation/implementation.Simplyput,arobustriskbasedalgorithmthatanalyzesstresslevelsandvolatilityat
thecusiplevelmaybeidealfromariskmanagementapproach,butthepracticalrequirementsofbuildingthis
infrastructureandrollingoutthisapproachtoallmarketparticipantsisbeyondwhatmarketwideinfrastructure
cancurrentlymanage.FormostCashInvestors,theTaskForcebelievesthatsettingmarginlevelsbyassetclass
providesanappropriatebalance,allowingcreditratingsandmaturitiestobetakenintoaccount,withsufficient
granularitytoensuresufficientriskdifferentiationbutalsoensuringthatthenumberofcollateraltypesassociated
withmarginlevelsismanageable.Inaddition,therepomarketwillneedtobalanceanynewriskbased
approacheswiththepotentialcostofimplementationaswellastheoperationaldifficultiesassociatedwithdayto

AsdiscussedinSection5,someCashInvestorsassignmoreweighttotheDealercreditquality,independentlyofthecollateralpledged,sorisk
basedmarginingmaynotpreventCashInvestorsfromexitingtripartyreposwithadeterioratingDealer.

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daymanagement.However,theprinciplesoutlinedhereshouldbefollowedbyallmarketparticipants,regardless
oftheriskmanagementtoolsandthespecificapproachtheyusetoimplementthem.Thismaymeanthatsome
securitiesarenotappropriateforcertainCashInvestors.Thiswillbedriven,atleastinpart,bytheCashInvestors
abilitytoanalyzetheriskofthespecificassetclassgiventheirinternalrisksystems.

AvoidProCyclicalBehavior
Asriskwasperceivedtobelowerandspreadstightenedthroughoutthelastcreditcycleacommontrendwasto
seereductionsintheamountofcollateralthatwasprovidedintherepomarket.Atthetime,themarketaccepted
thispracticebasedupontheprevailingstablemarket.

Asthemarketsdeterioratedin2008and2009marketparticipantschangedmarginrulesetsbyexcludingcertain
assettypesandincreasingmarginlevelsinordertooffsettheperceivedhighercollateralliquidationriskduetothe
increaseinpricevolatility.Attheextreme,someparticipantspulledoutoftherepomarketbecausetheybecame
uncomfortablewiththeunsecuredcreditriskresultingfrominsufficientmargin.Thisprocyclicalbehaviorincented
risktakinginperiodsofstabilityanditconstrainedliquidityattheworstpossibletime.Insomecases,thisalso
resultedinparticularconcernassomeDealersreliedonClearingBankstofinancecollateralnolongeracceptedby
CashInvestorswhilealternativefinancingwassought.

Ingeneral,theTaskForcebelievesthemarginingprocessshouldavoidprocyclicalbehaviorwherebyClearing
BanksandCashInvestorschangetheirrulesetsinasuddenandcapriciouswayintimesofstress,leavingDealers
withlittlefinancingoptionsforilliquidcollateral.Asamoreriskfocusedandstressbasedhaircutapproachis
incorporatedwebelievethisprocyclicalbehaviorwillbereducedbecauseofthehighermarginlevelsthatwillbe
appliedexanteandregularlyadjustedthroughoutthemarketcycle.Thisshouldreducedramaticorunexpected
callsforadditionalcollateral.Furthermore,thisthroughthecyclemarginwillprovidesufficientprotectionsuch
thatincreasesinvolatilityorreductionsinliquidityandpricetransparencywillnothavethesamesignificant
impactonrepofundingormarginarrangements.

Objective&TransparentMethodology
MisunderstandingsrelatedtothetripartymarginingprocessbetweenDealersandClearingBankswasanother
driverofinstabilityintherecentmarketcrisis.WhilebothClearingBanksandCashInvestorshaddiscretionto
increasetheirmargin,therewasnoframeworktodiscloseorexplainthemarginmethodologyorunderlying
driversandassumptions.

Incontrast,theTaskForcebelievesthatanobjective,welldefined,andtransparentmethodologythatreduces
unexpectedincreasesordecreasesinmarginrequirementsshouldcontributetotheeliminationofthis
uncertainty.Furthermore,webelieveamoretransparentapproachwillreducetheneedforunanticipatedand
poorlyunderstoodmargincalls.Akeyfeatureofthisapproachwillbedisclosurethatexplainsthedriversand
rationaleofthecalculation,aswellasitsunderlyingassumptionsandmechanics(e.g.,howarecreditrisk,interest
raterisk,liquidity,concentrationrisks,etc.accountedfor?).

Additionally,anychangestothemethodologyshouldbecommunicatedtoallparties,andshouldbephasedinto
themarginingprocesswithreasonablenoticetime.Althoughtheabilitytoincreasehaircutsisakeycomponentto
riskmanagement,thephasinginofchangestothemarginingprocessshouldnotmateriallyimpactthevarious
partiescreditexposureanalysisastheagreeduponthroughthecyclehaircutshavealreadyassumedastress
basedcushion.Additionally,thisphasedinapproachwillgiveDealerssufficienttimetoprepareforincreased
haircutsortootherwisemanagetheirinventoryifpostingtheincrementalmarginisuneconomic.Asaresult,we
believethisprocesswillreducethepossibilitythatchangesinrepomarginingwillhaveadestabilizingimpacton
themarket.

DeterminingAppropriateMargins

Becauseofthecomplexitiesofthemarginingprocess,theTaskForceisnotmakingdetailedtechnical
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recommendsthatmarketparticipantsadopttheseprincipleswithintheirownriskmanagementapproaches.In
addition,theTaskForcerecommendsthatmarketparticipantsreviewtheregularpublicationoftripartyrepo
marginlevelsthatwillbecomeavailableastheresultoftheTaskForcesRecommendationsinSection8ofthe
Report.Theseshouldserveasabenchmarkforassessingmarginlevelsbutarenotasubstituteforundertaking
onesownanalysis.InformationontherelativeconcentrationofDealersindifferentassetcategoriesmaybe
informativewithrespecttothepotentialforlargerliquidityeffectsonpricingintheeventofaliquidationand
thereforemightbeparticularlyusefulinthemargincontext.

Recommendation6.

CashInvestors,Dealers,andClearingBankstodetermineappropriatecollateralmargins
inlinewiththeprinciplessetoutinSection6ofthisReport,takingnoteofmonthlyTri
PartyRepoStatisticstobepublishedontheFederalReserveBankofNewYorkwebsite.
(Ongoing)

AlthoughthisRecommendationisaddressedtobothClearingBanksandCashInvestors,itisimportanttonotethat
theimplementationconsiderationsaredifferent.Therefore,itshouldnotbeexpectedthatthespecificmargining
methodologies/processeswouldbethesamebetweenClearingBanksandCashInvestors.

MarginingProcessbetweenDealerandClearingBank

TheClearingBankunwindandmarginingprocesswasnotwellunderstoodbyallDealers.Ashighlightedabove,
theTaskForcedoesnotproposeaprecisemarginingmethodologytobeusedbyallClearingBanks.Insteadwe
recommendthatClearingBanks/Dealersworktogethertoimprovetransparencyandreducesubjectivityinthe
dailymarginingprocess.

Recommendation7.

ClearingBankstocontinuetoshareinformationonintradaymarginmethodologiesand
processeswithrespectiveDealers.(Ongoing)

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Section7: ContingencyPlanning

ThefocusofthispartoftheTaskForceseffortshasbeenonimprovingpreparednesstocopeeffectivelywiththe
defaultofaDealerfirm.GiventheRecommendationsonoperationalarrangementsandtheenvisionedreductions
inClearingBankprovisionofintradaycredit,itfollowsthatCashInvestorsshouldhaveevenstrongerincentivesto
engageineffectivecontingencyplanningforsuchevents.

Acriticalstartingpointforsuchcontingencyplanningistheassessmentofpotentialimpactsfromsuchadefault
event.ThistypeofstressanalysisshouldconsiderthedefaultoftheCashInvestorssinglelargestrepo
counterparty(asmeasuredbyexposure),astandardthathaslongbeenappliedtoparticipantsinsystemically
importantpaymentandsettlementarrangements.Inaddition,itshouldconsidertheimpactofthatDealers
defaultonthepriceofthecollateralthatwouldneedtobeliquidated,thelengthoftimetheCashInvestor
believeswouldbeavailableforsuchliquidation,andanyotherfactorsthatmightimpacttheproceedsfrom
collateralliquidation.Theresultsofthestressanalysisshouldfactorintotheriskassessmentandriskappetiteof
CashInvestorsaswellastheircollateralconcentrationlimitsandmarginsettingprocesses.Theseresultsshould
bediscussedwithseniormanagementandboardsasappropriatedependingonthenatureoftheorganization.

Recommendation8.

CashInvestorstoundertakeregularstresstestsoftripartyrepocounterpartyexposures
thatconsideradefaultofthelargestrepocounterpartytogetherwithpotentialchanges
inthemarketvalueoftheunderlyingcollateral.(Ongoing)

AfteraDealerdefault,CashInvestorshavetherighttoseizeandliquidatethecollateralandshouldhave
appropriateprocessesandprocedurestohandlecollateralmanagementandliquidation.Intheeventthatthe
collateralliquidationproceedsareinsufficienttooffsettheentireamountoftheCashInvestorsclaim,theCash
InvestorretainsanunsecuredclaimagainsttheDealerfortheamountnotsatisfied.Thoughtfulmanagementof
thecollateralcanminimizetheimpacttoanindividualCashInvestorandtothemarketasawhole.

CashInvestorsshouldbepreparedforaborrowerdefaultbyhavingpolicies,procedures,andsystemsinplaceto
beabletofacilitatethedeliveryofcollateral.ThisplancouldincludeinstructingtheClearingBankthatholdsthe
collateralonbehalfoftheCashInvestorpriortothedefaulttotransferthecollateraltoasegregatedcollateral
accountattheClearingBank.TheCashInvestor,eitherdirectlyorwiththeassistanceofanagent,mustbeableto
pricethecollateralinordertoassignapricetotheirdefaultedrepopositionheldbytheCashInvestor(e.g.,market
valueofdefaultedrepopositionisdependentuponthemarketvalueofthecollateralitexpectstoreceiveupon
liquidation).

CashInvestorsshouldhaveacohesivestrategyandresourcestosupporttheorderlyliquidationofadefaulted
Dealerstripartyrepocollateral.Dependinguponmarketconditions,immediateliquidationmaynotbethebest
optionforsomeCashInvestors.ThedefaultedrepopositioncouldbeanilliquidholdingandtheCashInvestormay
needliquiditybeforetherepocollateralisliquidated.EachCashInvestorshouldhaveanoverallliquidityplan
whichtakesintoaccountthepossibilityofaDealerdefault.SomeCashInvestorsmaychoosetomanagethesale
ofcollateraldirectlywhileothersmayelecttouseadelegatedliquidationagent.Cashinvestorsshouldestablish,
monitor,andtesttheseprocedurestoensurethatagentsareabletoacceptthedeliveryofcollateralatanytime.

Recommendation9.

CashInvestorstoputinplaceandregularlyreviewcontingencyplansforaDealerdefault
thatcover,ataminimum,aprocessforeffectivelymanagingcollateral,includingaplan
tomanageliquidityandriskexposureduringtheliquidationprocess.(15Jan2011)

BuildingontheworkofTaskForce,towhichithascontributedsubstantially,theInvestmentCompanyInstituteis
developingamorecomprehensivesetofBestPracticeguidancefortheCashInvestorcommunity,withaparticular
focusonmoneymarketmutualfunds.TheTaskForcestronglysupportsthisinitiative.

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Recommendation10. Relevantindustryassociationsinconjunctionwiththeirconstituentsareencouragedto

publishcomprehensiveBestPracticeguidanceforCashInvestors.(30Sep2010)

MitigatingliquidityimpactofDealerdefault

ThereareseveralpossiblewaystoreducetheliquidityimpactofafailingDealeronCashInvestors,inadditionto
theobviousapproachofreducingthesizeofrepoexposuresinthefirstplace.

Prearrangingsecuredliquidityfacilities

CashInvestorsmaychoosetoenterintoacommittedliquidityfacilitythatwouldallowthemtoobtaintemporary
liquiditysecuredbyhighqualityunencumberedsecuritiesthattheyown.ManyCashInvestorsownsufficient
highquality,shortdatedsecuritiesthatcouldcollateralizethefundingundersuchafacility.Thefacilitywould
reducetheneedtoengageinafiresaleofcollateralthatcoulddepresssecuritiesprices.Cashinvestorswould
needtogaugehowlargeacreditfacilitymightbeneededtocovertheirliquidityneeds.Thismustbereassessed
regularly.ThepotentialuseofsuchfacilitiesbyregulatedCashInvestorsshouldbediscussedwiththose
regulators.

Netting/offsetofDealerpositionsthroughDTCC(TheDepositoryTrust&ClearingCorporation)

OffsetingpositionsthatCashInvestorsholdrelativetoadefaultedDealerandthosethattheDealerheldwithits
otherclientsreducesthenumberofpositionsthatneedtobeliquidated.Themorepotentialoffsetsthatcanbe
identified,thelesspotentialliquidationneedstooccur

IntheeventofaDealerdefault,ClearingBanksandDTCCshouldreviewallFICC(FixedIncomeClearing
Corporation),NSCC(NationalSecuritiesClearingCorporation),andDTC(TheDepositoryTrustCompany)sell
positionsinordertoidentifytripartyrepocollateralthatcanbeusedtosatisfythedefaultedDealersshort
positionsthroughanetting/setoffprocess,whichcouldresultinlesscollateraltobeliquidatedintheopen
market.Proceduresneedtobeinplacetocontrolthisflow.DTCChasexistinginfrastructureinplacewithClearing
Banksthatcouldpotentiallybeleveragedtoaccommodatethisprocess.DTCCdidapreliminarysampleanalysisof
threelargetripartyrepoportfoliosbasedondatareceivedfromeachoftheClearingBanks.Theanalysisfocused
onU.S.TreasuryandU.S.Agencydebtcollateral.Nettingopportunitiesrangedfrom9%to18%.

Recommendation11. DTCCanditsaffiliatestoworkwithothermarketparticipantstomaximizethepotential

foroffsettingofpositionsintheeventofaDealerdefault;DTCCand/orotherinterested
partiescanprovideaviablecollateralliquidationmanagementserviceforthoseCash
Investorswishingtodelegatetheseactivities.(30Nov2010)

AdditionalConcepts

LiquidityStabilizationUtility

ThisisamorefarreachingconceptasmentionedinSection1oftheReport.Theideawouldbetoestablishan
ongoingbankentity,theLiquidityStabilizationUtility(LSU),whichwouldexistfortheprimarypurposeofproviding
liquiditytoCashInvestors.TheLSUcouldprovideCashInvestorsacollateralizedloantransactionsecuredbyhigh
qualityshorttermassetsownedbytheCashInvestors.CashInvestorscouldthendisposeoftherepocollateral
receivedfromthedefaultedDealerinanorderlymanner.

Asabank,theLSUcouldinprincipleraisecashtofundtheloanstotheCashInvestorsbypledgingthehighquality
assetstotheFederalReservediscountwindow.Theobjectivewouldbetoeliminateasfaraspossibletheriskof
losstotheLSUortheFederalReservebyhavingtherelevantCashInvestorscontractuallyobligatedtobearthe

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firstlossofanyshortfallsduetothepricesobtainedintheultimateliquidation.Capitalwouldbebuiltupinthe
LSUovertimethroughfees,allowingittoplayagreaterroleinprovidingliquidityasitgrows.

AsnotedinSection1,theLSUraisesanumberofissues,includingitsultimaterelianceonFederalReserveliquidity,
andthereforetheTaskForceisnotincludingarecommendationregardingtheLSU.

CentralCounterparty

AnotherfarreachingconceptisthenotionofacentralcounterpartyorCCPfortripartyrepotransactions.At
theheartoftheCCPideaistheconceptofmutualizationofanylossesabovethemarginschargedbytheCCP.
Theseareexpectedtobehigherthanthosechargedinbilateraltransactions.Themutualizationcouldoccuracross
theDealercommunity,oracrosssomecombinationofDealersandCashInvestors,andwouldnotnecessarilyimply
anychangeininfrastructurerelativetothatmaintainedbythetwoClearingBanks.BecausetheCCPstandsinas
thecounterpartyfacingCashInvestorsinitstripartytransactions,inprincipleitcouldfinancetheliquidationof
collateralassociatedwithadefaultedDealersimplybyundertakingnewtripartytransactions.Aslongasthe
creditqualityoftheCCPitselfwasnotinquestion,thisapproachwouldthereforehavepotentialtoaddress
concernsbothwithrespecttothefiresaleliquidationofcollateralandwithrespecttothestabilityoftriparty
financing.Thecostsandcomplexityoftheissuesinvolved,however,especiallypriortotheoperational
enhancementsneededtoeliminatetheneedforintradaycredit,leadtheTaskForcetoavoidmakingaspecific
recommendationregardingacentralcounterparty.

Recommendation12. Allmarketparticipantstocontinueexploringadditionalconceptsthathavethepotential

toaddtothestabilityandresilienceoftripartyrepofinancingand/orreducethe
potentialforcollateralfiresalesintheeventofaDealerdefault.(Ongoing)

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Section8: Transparency

Thetripartyrepomarkethashistoricallyseenonlylimiteddisclosuresregardingtheaggregatesizeofthemarket,
collateraltypes,andmarginlevels.Thislackoftransparencycontributestomarketuncertaintyduringtimesof
stressandalsomayhavecontributedtounderestimatesoftheextentofprocyclicalityinherentinprecrisis
marginlevelsandinthesystemicriskpotentialofthetripartyrepomarketoverall.

Recommendation13. Initiatemonthlypublication,viatheFederalReserve,ofaggregatestatisticsontriparty

repocollateralandCashInvestormarginlevels,withdisclosurebyassetclass,basedon
informationprovidedbytheClearingBanks.(SeeTable1forapilotversion.)(30Jul2010)

Thepilotversionofthereportdoesnotyetincludeterminformation,howevertheplanistoprovidethisonceitis
availableandreviewedbytheTaskForce.

CollateralValuation

Ashighlightedinthediscussionofmarginingpractices,marginswillonlybeeffectivetotheextenttheyarebeing
appliedinconjunctionwithanaccuratepriceforthesecuritiesheldascollateral.Ifinaccuratepricesarebeing
suppliedbythirdpartyvendorstheClearingBank/CashInvestormaybeexposedtoasituationwherethemarket
valueofcollateralisinsufficienttocoverthereponotional.Thiscouldpotentiallyresultinunsecuredcounterparty
creditexposureresultingfromcollateralvaluationrisk.

InordertominimizethecollateralvaluationrisktheTaskForcebelievesthevaluationprocessrequiresrobust,
reliableandindependentpricingsources.Managingcollateralvaluationriskrequiresthatparticipantsunderstand
thenatureandtypeofsourcesthatarebeingusedtogetherwithassociatedmethodologies,inparticularwhere
modelbasedpricesarebeingused,aswellastheassumptionsandinputsourcesassociatedwiththosemodels.
TheremayalsobesomecollateraltypeswherecollectiveeffortsbyDealerscouldfurtherenhancethe
transparencyofvaluation.Forexample,insomemarkets,thirdpartyserviceshaveenabledanonymous
compilationofmarksappliedandtherebyprovidedadditionalusefulinformationontherangeandcentral
tendencyofsuchmarks.

Giventhelossofliquidityandtheincreaseinvaluationuncertaintythatsomecollateraltypesexperiencedduring
thecrisis,theremayalsobebenefitinexploringwhetheradditionalinformationontherangeandnatureof
valuationscouldbeusefulinmeasuringtheextentofvaluationuncertainty.CashInvestorswouldalsobenefit
fromunderstandingasrapidlyaspossiblewhenandwherevaluationuncertaintyisincreasing.

Lastly,inthecurrentenvironment,therearemanyassetclassesforwhichthevendorsprovidepricingasofthe
previousdayscloseofbusiness.Inavolatilemarket,thisstalepricingcanmisstatethecurrentvalueofthe
assets.Asaresult,thereisaneedtoevaluatethepossibilityofprovidingsamedaypricingvaluationsacrossa
widerrangeofassetsincludedwithinthetripartyrepomarket.

Forallthesereasons,theTaskForcebelievesthatitisdesirabletoestablishafocusedworkinggroupofvaluation
specialiststolookattheseandotherissuesandtomakerecommendations.

Recommendation14. TheTaskForcewillestablishaworkinggroupofvaluationspecialistsacrosstripartyrepo
marketparticipantstoevaluatecollateralpricingmethodsandmakerecommendations

forimprovements,includingthefeasibilityofsamedaypricing.(15Oct2010)

Onaregularbasis,bothDealersandCashInvestorsshouldbecomparingortestingvaluationsprovidedbyClearing
Banks.CashInvestorsshouldtestthevendorpricesprovidedbytheClearingBanktodetermineifthelevelof
overcollateralizationisappropriate.RunningindependentpricinganalysiscanhelpCashInvestorsidentify

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potentialissuesandcorrectthem.CashInvestorsshouldbeabletopricethecollateraltheyreceiveandshould
validatetheirpriceswithClearingBanksandDealers.ThissupportsvalidatingthepricesusedbyClearingBanks
andincreasespricetransparencyacrossthetripartyrepomarket.Dealersshouldlikewiseincludeacomparisonof
valuationsaspartoftheirregularinteractionswithClearingBanks.Thiscouldincludeestablishingbilateral
tolerancelevelsthattriggergreaterreviewordiscussionbetweentheDealerandtheClearingBank.

Recommendation15. CashInvestorstoregularlyvalidatetripartycollateralforpricing,appropriateness,and

classification.Dealerstoregularlycomparecollateralmarksontheirownbooksand
recordswithvendorpricesprovidedbytheClearingBanks.(Ongoing)

AspecialcaseariseswhentheDealersmarksforagivensecurityaremateriallybelowthepricesprovidedbythe
ClearingBanks,whichobtainthemfromthirdpartyvendors.Insuchcases,Dealersshouldhighlightthevariations
toCashInvestorsandClearingBankstoensurethatrepotransactionsarenotfinancingsecuritiesatlevelsthat
wouldimplyamaterialshortfallofmargin,assumingtheDealersvaluationisthecorrectone.

Recommendation16. DealerstoinformCashInvestorsandClearingBanksincaseswheretheDealersmarks

aremateriallybelowthevendorpricesprovidedbytheClearingBank.(Ongoing)

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Section9: Assessment

AsdiscussedinSection1ofthisReport,therecentcreditcrisishighlightedmaterialweaknessesintheU.S.triparty
repomarketthatexposedtheglobalfinancialmarketstosystemicrisk.Theseweaknessescanbegroupedintothe
followingcategories:

OperationalArrangements:ThedailyunwindprocessresultedinthetwoClearingBanksextendingupto
$2.8trilliondollarsinintradayfunding.Thisalsoresultedinuncertaintyastowherethecreditexposure
residedthroughouttheday.

DealerLiquidityRiskManagement:ExamplesincludeDealersrelianceonveryshortdatedrepo
financing,aswellasDealersrelianceonuncommittedfundingtosupportthedailyunwindprocess.

MarginingPractices:ProcyclicalmarginingpracticesresultedinalossofliquidityforDealersinastressed
market.

ContingencyPlanning:InsufficientpreparationformarketparticipantstocopewithaDealerdefault.

Transparency:Themarketgenerallylackedtransparencyintermsofmarketdepthandrisk.

Inaggregate,theproposalsthataredetailedinthisReportwilldrasticallyreduce,althoughnoteliminate,manyof
theserisks.Thefollowingparagraphswillsummarize,throughspecificexamples,wherethisriskisreduced.

Thepracticaleliminationofthedailyunwindsfornonmaturingtradeswillreducetheintradaycreditbythe
ClearingBankstolessthan10% 9 .Atitspeak,thiswouldhaveresultedina$2.5trillionreductioninClearingBanks
creditrisk.Furthermore,bypotentiallyresettingthemarketstandardforunwindingmaturingtradesuntillaterin
theday,theClearingBanksremainingcreditriskwillbefurtherreducedtoanafternoonwindowperiodinagiven
daywithregardstotheunwindprocessformaturingtrades 10 .

InordertoimproveCashInvestorscapacitytomanageaDealerdefault,theRecommendationsinthisReport(1)
encourageamoreriskbased,nonprocyclicalmarginingprocessthatwillimprovetheexpectedrecoveryrateina
defaultscenario,and(2)provideanindustrynettingmechanismandsupportanoptionalliquidationagent.These
enhancementswillimprovetheresiliencyoftheproductasparticipantswillhavegreateraccesstoafully
functionaloperationalprocessforcollateralliquidation.

FromaDealersperspective,althoughtheamountofintradayfundingrequiredfromtheClearingBanksislimited,
atransitionfromuncommittedfundingfacilitiestocommittedfundingfacilitieswouldgreatlyreduceaDealers
liquidityrisk.Additionally,bythemarketmovingtoariskbased,nonprocyclicalmarginingprocesstheDealers
willbelesslikelytoseeamassivewithdrawaloffundingastheyenterastressedenvironment.

Lastly,theindustryisundertakinganefforttoimprovemarkettransparency.Thistransparencywillcomein
variousforms:(1)theindustrysfirstmonthlypublicationwhichdetailstheoverallsizeanddepthoftheU.S.tri
partyrepomarket,(2)TriPartyRepoBestPracticesguidanceforCashInvestorswhichwilleducateallmarket
participantsastotherisksoftheproductandthebestpracticestomanagetheserisks,(3)athreeway,realtime
tradeconfirmationprocess,and(4)practicaleliminationofthedailyunwindprocesswhichwillensureclarityon
intradayexposures.Thiswillsubstantiallyenhancetheabilityforsupervisorsandmarketparticipantstoassess
trendsandcallattentiontoemergingissuesbeforetheybecomesystemicinnature.

The10%representstheestimatedportionofaDealer'sbookthatmaturesorreceivesinitialfundingonagivenday.

10

ClearingBanksmayadditionallyprovidesomeintradaycreditrelatedtocashsubstitutionspriortotradematurity.Wedonotexpectthese
amountstobematerial.

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ItisimportanttonotethattheTaskForcewasnotmandatedtoopineontheliquidityriskmanagementpractices
ofthevariousDealers.AlthoughtheReporthastouchedbrieflyonsomegeneralbestpracticesonthistopic,it
alsoseemsclearthatupcomingregulatorychanges(e.g.BaselIII,etc)willfurtherreduce,althoughnoteliminate,
theprobabilityofaDealerdefaultbyincreasingcapitalandliquiditystandardsgenerally.Thestandardsproposed
inrelationtoliquidityareparticularlyrelevantastheyarelikelytomeanthatlowerqualitycollateralfundedvia
shortdatedrepomustbematchedbyliquidassetswithinthefirmsliquiditybuffer.

Thebenefitsofthesemodificationsareillustratedbythefollowingsimplifiedtransactionexamplesthatcompare
(1)thecurrenttripartyframework,and(2)theframeworkafterimplementationofallproposals:

Example#1:BusinessAsUsualScenarioRepoTradeIsExtended 11
Assumptions
o Dealerhasasingle,$1.0bnrepomaturingtoday
o DealerandCashInvestoragreetoenterintoanew$1.0bnrepopriortothemorningdeadline
o Thecollateralallocationisstatic(e.g.nocollateralsubstitutionsarerequired)

CurrentMarketProcess
o TheClearingBankisnotnotifiedofthenewtradedetails
o TheClearingBankextendsa$1.0bnintradayloantotheDealeraspartofthedailyunwind
process
o TheClearingBankcreditsa$1.0bndepositintotheCashInvestorsaccount
o TheDealerisreliantonadiscretionarylineofcreditfromtheClearingBanktomanagethe
operationalflowsonthistrade
o Attheendoftheday:theClearingBankreallocatesthecollateraltotheCashInvestor;
withdrawsthecashdepositfromtheCashInvestorsaccount,andclosesouttheintradayloanto
theDealer
o CashInvestorscreditriskistransferredbetweensecuredDealerriskandunsecuredClearing
Bankdepositrisk.ThetimingofthisrisktransferisunknowntoCashInvestorthroughoutthe
day

PostTaskForceImplementation
o TheDealer,CashInvestor,andClearingBankconfirmthedetailsofthenewtradeviathethree
way,realtimeconfirmationprocess
o Thetradeisnolongersubjecttothedailyunwind
o TheClearingBankwillnotneedtoextendanycredittotheDealerinthecontextofthisexample
o TheCashInvestorhasrepoexposuretotheDealerallday

Example#2:BusinessAsUsualScenarioRepoTradeMatures
Assumptions
o Dealerhasasingle,$1.0bnrepomaturingtoday
o TheDealerandCashInvestorareunabletoagreeonanewrepotrade
o Thecollateralallocationisstatic(e.g.nocollateralsubstitutionsarerequired)
o InthePostImplementationTaskForcescenario,theoriginaltradewillbesubjecttotheEndof
DaySettlementtimediscussedinSection4oftheReport.

CurrentMarketProcess
o Inthemorning,theClearingBankextendsa$1.0bnintradayloantotheDealeraspartofthe
dailyunwindprocess
o TheClearingBankcreditsa$1.0bndepositintotheCashInvestorsaccount

11

Withtheexceptionoftheconfirmationprocess,anonmaturingtermtradewillhavesimilarmechanics

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o
o
o

TheDealerisreliantonadiscretionarylineofcreditfromtheClearingBanktomanagethe
operationflowsonthistrade
CashInvestorwithdrawsthiscashinthemorningleavingtheClearingBankwithsoleexposureto
theDealer
Attheendoftheday,theDealerrepaysthe$1.0bntotheClearingBanktocloseouttheintraday
loan

PostTaskForceImplementation
o Attheendofthebusinessdayandsubjecttothetermsofthecommittedfundinglineinplace
betweentheDealerandtheClearingBank 12 ,theClearingBankextendsa$1.0bnloantothe
Dealer,andcredits$1.0bnofcashintotheCashInvestorsaccount
o FromtheDealersperspective,theintradayloaniscommittedsubjecttothetermsofthe
agreement
o TheCashInvestorwithdrawsitscashattheendoftheday
o TheDealerwillrepaytheintradayloanpriortotheendoftheday

Example#3:DealerStressScenario($1.0bnrepotradedoesnotmatureduetoDealerdefault)
Assumptions
o Dealerhasasingle,$1.0bnrepomaturingtoday
o InthePostImplementationTaskForcescenario,Dealerisunabletomeetthetermsofits
committedintradayfundingfacilityfromtheClearingBank(e.g.unabletopostthenecessary
collateral),andtheDealerisunabletorepaytheprincipalamountdue

CurrentMarketProcess
o Duetothestressinthemarket,thereisgeneraluncertaintyastohowtheunwindprocesswill
work:
TheClearingBankmayormaynotunwindthistrade
TheDealerdoesnothaveanyclarityastowhetherthetradewillunwind
TheCashInvestordoesnotknowif/howthematuringtradewillbeunwound
IfthetradeisnotunwoundandtheDealerdefaults,thereisuncertaintyregardingthe
liquidationprocess

PostTaskForceImplementation
o Attheendoftheday,theClearingBankmakesamargincalltotheDealer;Dealerisunableto
meetthecall
o PerthetermsofthecommittedfundingfacilitytheClearingBankwillnotunwindthematuring
trade(i.e.nocreditwillbeextendedtotheDealer,collateralwillremainintheCashInvestors
account).Asaresult,theCashInvestorwillretainitsrisktotheDealer
o Attheendoftheday,iftheDealerhasnotrepaidtheprincipaldue,thecollateralliquidation
processwillbegin
Theindustrynettingprocesswouldpairofftradestoreducetheinventorythatwillbe
deliveredtotheCashInvestors
Ifelected,theremainingcollateralafternettingwillbetransferredtothethirdparty
liquidationagentwhowillactonbehalfoftheCashInvestor
Ingeneral,theCashInvestorwillbebetterpreparedtomanagethisscenarioduetotheir
improvedcontingencyplanning

12

Termsmayincludemaximumfundingcapacity,collateraleligibility,definedhaircuts,etc

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Section10: NextSteps

UponthepublicationofthisReporttheTaskForcesoriginalmandatewillbecompleted.However,inorderto
maintainthecurrentmomentumthroughtoexecution,theTaskForceproposestotakeownershipofthe
implementationphasefromacollectiveindustryperspective.Thisproposalisintendedtocombinethebenefitsof
continuitywiththeflexibilitytoevolvetheTaskForceandtheindividualsthatareparticipating.TheTaskForce
alsorecognizesthatothergroupingsmayintimebeseenasmorenaturalpointsofgovernanceforcertainissues
discussedinthisReport.Nevertheless,theTaskForcebelievesthegreaterconcernintheshortrunmustbeto
maintainmomentumanddrivetheoperationalimprovementsneededinthetripartyrepoinfrastructure.

Accordingly,thefocusoftheTaskForcesnextphasewillconsistof:(1)theexecutionofitsRecommendations,in
particulartheindustryactionplantoimprovetripartyrepooperationalarrangements,and(2)analyzingand
adaptingtheseRecommendationsbaseduponpotentialregulatorydevelopmentsandresponsestotheFederal
ReservesWhitePaper.TheTaskForcewillmaintainaworkinggroupfocusedprimarilyonoperational
infrastructureimprovementsandwillestablishasecondworkinggrouponvaluationissuesasoutlinedinthe
Recommendations.TheTaskForcewillalsocontinuetoseekinputfrommarketparticipantsnotdirectly
representedontheTaskForce.

TheTaskForcewishestothankallmarketparticipantsandstaffatofficialagencieswhoprovidedinputor
otherwisecontributedtothisReport.AfulllistingoftheTaskForcemembersandthosewhocontributedtoits
workstreamsisincludedasAnnex4oftheReport.

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Section11: Annexes

Annex1MinimumParametersRequiredforTradeMatching

Aminimumnumberofparametersmustagreeinorderforabookedtradetobematched.

Theseparametershavebeenlistedanddefinedbelow.Therearecertaineconomictermsofarepotrade,suchas
theactualbenchmarkused,whichmaynothavebeendefinedintheinitialbooking,butwhicharenotrequiredfor
asuccessfulmatch.Allfieldslistedbelowmustbepopulated,atleastwithdefaultvalues.Nofieldscanbeblank
unlessotherwisenotedbelow.

1. Buyerlegalentity.TheBuyerslegalname.Fortheinitialmorningtrades,priortobeneficialownersub
accountallocationsbeingready,theBuyerslegalnamemaybelongtothetopaccountowner,theinvestment
advisor,oranotheraffiliatedentityrepresentingtheeventualbeneficialowner(s).Intheafternoon,once
allocationsareavailable,thisfieldwouldbepopulatedwithbeneficialownerslegalname.
2.

Sellerlegalentity.TheSellerslegalentityname.

3.

Transactiontype.(Repo,B/P,[other])ThedefaultwouldbeRepo.

4.

Tradedate.(MM/DD/YYYY)Thedatethetradestermsareagreed.

5.

Settlement/startdate.(MM/DD/YYYY)ThedateonwhichtheBuyerscashbeginsfundingtheSellers
inventory.

6.

Currency.(CCY)ThiswilldefaulttoUSD.

7.

Principal.Thesizeoftherepofinancing,listedintheunitsofCCY.

8.

Ratetype.(fixedorfloating)

9.

Rate.(NNNNbps)IfRatetypeisfixed,thefixedrateisentered.IftheRatetypeisfloating,theapplicable
spreadtothebenchmarkwouldbeincluded.Thebenchmarkwouldbeincludedinasubsequent
communication.

10. Maturitydate.(MM/DD/YYYY)Thedatewhenatradematures,whetheritisanovernighttradeoraterm
tradelongerthanovernight.OpentradeswillhaveastandardrepresentationTBDinthisfield.
11. Collateraltypeidentification.TheSellerandBuyerwillinputthesameidentifiertorepresentthecollateral
agreedtounderthetrade.TheClearingBankwillneedtobeabletorecognize,attheveryleastatahighlevel,
whatthiscollateralbasketis(e.g.,Treasuries,commonequities,etc.)inordertodoallocations.Note:thismay
requireastandardcollateralclassificationacrossallmarketparticipants,aswellasmorestandardcollateral
schedules.
12. Blocktradeidentification.ThisfieldisnecessarytobepopulatedbytheMatchingServiceinorderfor
subsequentallocationstobeneficialownersubaccountscancancelandreplacetheoriginalearlymorningtop
accounttrades.Thiswillonlybeusedfortradesthathaveafternoonallocations.
13. Initial/RevisedBreakdown.(Willbecomefinalbreakdownifnosubsequentsubmissionreceivedat"endof
day"tobedefined)
14. Morning/Afternoonsettlement.(Ifconventionisadoptedbyindustry)
15. RolledTrade.(Y/N)

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Annex2SummaryofWorkoftheLegalSubcommitteeoftheTaskForceonTriPartyRepoInfrastructure

Overview
UndertheleadershipoftheFederalReserveBankofNewYork,theLegalSubcommitteeoftheTriPartyRepoTask
ForceincludedlegalrepresentativesfromCashInvestors(assetmanagers/repoBuyers,Dealers(repoSellers),and
ClearingBanks.TheworkoftheLegalSubcommitteefocusedontryingtoprovidelegalsolutionstothefollowing
twochallengesinthetripartyrepomarket:
1. Confirmingthelegalcertaintyregardingrepocommitmentsmadeearlyinthedaybetweenvariousfunds
and/orjointaccount(s)andtheirDealercounterparties(onaprincipaltoprincipalbasis)whilemaintaining
flexibilitytochangeallocationstospecificprincipalsaftertheoverallcommitmentisestablished;and
2. EliminatingthedailyunwindofcashandcollateralcurrentlyperformedbytheClearingBanksinrespectof
termrepurchasetransactionsand,tothegreatestextentpossible,eliminatingthedailyunwindofcashand
collateralperformedbytheClearingBanksinrespectofallotherrepurchasetransactions.

TheproposaloftheLegalSubcommitteeisdescribedbelow,inbroadterms.Thisproposalisintendedtocoverall
typesofrepurchasetransactions,includingtransactionswhichinvolvejointtradingaccountsaswellastransactions
involvinggovernmentandnongovernmentsecurities,withtheunderstandingthattherewillnolongerbedaily
unwindsfortermrepurchasetransactions.Inaddition,theLegalSubcommitteethoughtitwasimportanttonote
thateachtimeaCashInvestorandaDealerenterintoanewrepurchasetransaction(evenifthattransactionis
betweenthesameCashInvestorandDealerandforthesamePurchasePriceasthetransactionenteredintoonthe
priorday),suchsubsequenttransactionislegallyanewtransaction.Theuseofcapitalizedtermsreferstocommon
definitionsinmasterrepurchaseagreements.

NotethatasdiscussedinSection4OperationalArrangements,theseproposalsonnewstandardizedsettlement
timeshavenotyetbeenagreedorfinalized.ThebelowisanoutlineofhowaMorningSettlementandorEndofDay
Settlementcouldwork.

OperationalAssumptions
ThissummaryassumesthattheClearingBankswouldbeabletosupporttwooperationalchangestocurrent
practice:
1. DealerswouldbeabletosubstitutecollateralinCashInvestorsaccountthroughouttheBusinessDayin
compliancewithapplicablemarginrequirements;and
2. TherewillbeathreepartyconfirmationsystemthroughwhichCashInvestors,DealersandClearingBanks
willhavecompleteinformationregardingwhathasbeenagreedtobetweenCashInvestorsandDealers
earlyinthetradingdayandthroughwhichrepurchasetransactionsmaybeallocatedamongCashInvestors
andtheallocationsadjustedatagreeduponintervalsduringtheBusinessDay.Suchconfirmationsystem
shallbereferredtohereinastheThreePartyConfirmation.

LifecycleofanOvernightRepurchaseTransaction
Asageneralrule,subjecttotheprovisionsbelow,thematurityofanovernightrepurchasetransactionagreed
toonanyBusinessDaywilloccurattheendofthedayonthefollowingBusinessDay.

Alternatively,andasanexceptiontothegeneralruledescribedabove,CashInvestorandDealermay,atthe
timesuchpartiesagreetoenterintosuchrepurchasetransaction,agreetoamorningsettlementinrespect
ofalloranyportionoftherepurchasetransactionagreedtoonsuchBusinessDay,wherebysuchrepurchase
transaction(orportionthereofsubjecttomorningsettlement)shallmatureonthemorningofthefollowing
BusinessDay.IfonlyaportionoftherepurchasetransactionagreedtoonsuchBusinessDayissubjectto
morningsettlement,thepartieswilltreatsuchportionasaseparatetransactionwithitsownThreeParty
Confirmation,andthebalancewillmatureattheendofthedayonthefollowingBusinessDay.

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AllocationofTransactions
OnanyBusinessDaythatCashInvestorandDealeragreetoenterintoarepurchasetransaction,CashInvestor
orCashInvestorsagent,alongwithDealerandClearingBank,shallconfirminthemorningthelegallybinding
agreemententeredintowithDealer,withaprovisionalnotice(theInitialNotice),whichshalltaketheform
oftheThreePartyConfirmation,andwhichshallindicatethespecificprincipal(s)orjointaccount(s)thatare
expectedtoparticipateinsuchrepurchasetransaction.Ifmorethanoneprincipalorjointaccountwill
participateinarepurchasetransaction,theInitialNoticewillindicatetheportionofthePurchasePricetobe
paidbyeachprincipalorjointaccountspecifiedintheInitialNotice.

InrespectofanyrepurchasetransactionevidencedbyanInitialNotice,CashInvestororCashInvestorsAgent
maysubsequentlyadjusttheidentityoftheprincipal(s)orjointaccount(s)andtheirrespectiveallocations(but
nottheaggregateprincipalamount)ofthePurchasePricespecifiedintheInitialNoticebyprovidingDealer
andClearingBankwitharevisednoticedeliverednolaterthantheendofthedayonthedateoftheInitial
Notice(theFinalNotice);itbeingunderstoodthat(i)CashInvestormayprovideoneormorerevisednotices
onsuchdate,butonlythelatestrevisednoticerelatingtosuchrepurchasetransactionandconfirmedbyCash
Investor,DealerandClearingBankshallbedeemedtobetheFinalNotice,(ii)ifCashInvestordoesnotprovide
anysuchrevisednoticetoDealer,theInitialNoticeshallbedeemedtobetheFinalNotice,and(iii)anyrevised
notices,includingtheFinalNotice,shalltaketheformoftheThreePartyConfirmation.

PromptlyuponDealersdeclarationofaCashInvestorEventofDefault,andinanyeventbeforenoonNew
YorkCityTimeonthenextBusinessDay,CashInvestor(s)agreetoinformDealerandClearingBankof(i)each
CashInvestorresponsiblefortheEventofDefault(eachaDefaultingCashInvestor),and(ii)eachDefaulting
CashInvestorsshareofthePurchasePriceoftheaccountTransactionsspecifiedintheFinalNotice.Onlysuch
DefaultingCashInvestorsallocatedshareofthePurchasePriceforsuchTransactionshallbedeemedsubject
tosuchCashInvestorEventofDefault.

DailyMaintenanceofTransactions
If,onanyBusinessDayfollowingthedateaFinalNoticewasprovidedinrespectofarepurchasetransaction
betweenCashInvestorandDealer,CashInvestorandDealeragreetoasubsequentrepurchasetransaction,
andCashInvestor,DealerandClearingBankhaveconfirmedsuchtransactionviaanInitialNotice,subjectto
anymorningsettlementagreedtoeitheronthetradedateorasdescribedinthefollowingparagraph,
ClearingBankwillunwind 13 onlytheportionoftherepurchasetransactionenteredintoontheprevious
BusinessDaythatexceedsthePurchasePricespecifiedonthecurrentBusinessDaysFinalNoticeattheendof
thedayonthecurrentBusinessDay.

OnanyBusinessDayfollowingthedateaFinalNoticewasprovidedinrespectofarepurchasetransaction
betweenCashInvestorandDealer,CashInvestorandDealermayagreetoamorningsettlementinrespect
ofalloranyportionoftherepurchasetransactionagreedtoonthepreviousBusinessDay,whereby(upon
noticeofthemutuallyagreedmorningsettlementtoClearingBank)suchrepurchasetransaction(orportion
thereofsubjecttomorningsettlement)shallmatureonthemorningofthecurrentBusinessDay.Subjectto
theprecedingparagraph,anyrepurchasetransaction(orportionthereof)notsubjecttomorningsettlement
willmatureattheendofthedayonthecurrentBusinessDay.Fortheavoidanceofdoubt,themorning
settlementoptionmaybeagreedtobyCashInvestorandDealerbothatthetimeofenteringintoa
repurchasetransactionandonthemorningofthefollowingBusinessDay.

If,onanyBusinessDayfollowingthedateaFinalNoticewasprovidedinrespectofarepurchasetransaction
betweenCashInvestorandDealer,CashInvestorandDealerdonotagreetoasubsequentrepurchasetransaction,
unlessthetransactionissubjecttomorningsettlement,ClearingBankwillunwindtherepurchasetransaction
enteredintoonthepreviousBusinessDayattheendofthedayonthecurrentBusinessDay.

13

NothingcontainedinthissummaryisintendedtocreateanyobligationonbehalfofClearingBanktoextendcredittotheSellerinorderto
supportanyunwinduponthematurityofarepurchasetransactioncontemplatedherein.

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Annex3Explanatorynotestothetableoninvestorhaircutsandthetableoncollateralcomposition

1. Thetablesarebasedonthemarketvalueincludingandmarginpercentagesappliedintripartyrepurchase
transactionsintheU.S.Thesummarystatisticsarebeingprovidedtomarketparticipantsintheinterestof
creatinggreatertransparencyonthesizeandnatureoftheU.S.tripartyrepomarket.Eachinvestorshould
makeriskbaseddecisionsappropriateforhisorherowninstitutionwithproperconsiderationforthecredit
qualityofthepartiestoatransaction.

2. Thefiguresinthetablearederivedfromtheentirepopulationofsecuritiesallocatedintripartyrepurchase
transactionsforwhichBankofNewYorkMellon(BNYM)andJPMorganChase(JPMC)serveasagents.These
transactionsareexecutedontheirU.S.basedtripartyplatforms.
a. Becausethedatasetcomprisestheentirepopulationoftripartyrepos,thefiguresshownareallinclusive
andarenotestimatesthatareobtainedbydrawingasample.
b. ReadersshouldbeawarethatwhilethisdatareflectsallU.S.tripartyrepo,itdoesnotaccountforany
bilateralrepotrades,andthusdoesnotreflecttheentireU.S.repomarket.

3. Thedatasetwasobtainedforasingledate,specificallythecloseofbusinesson4/9/2010.Thisdate,the
seventhbusinessdayofthemonth,wasselectedbecauseitisjudgedtobeatypicalbusinessdate.Dayssuch
asthefirstorlastbusinessdayofthemonth,oramortgagebackedsecuritiessettlementday,couldintroduce
distortionsintothedata.
a. Itisproposedthatthesetablesbepublishedmonthlyasoftheseventhbusinessdayofeachmonthunless
suchdateisdeemedbytheFRBNYorthetwoClearingBankstobeanatypicalbusinessdayinwhichcase
analternatedatewillbeselected.

4. ThedataconsistsofthemarketvaluesappliedbyBNYMandJPMCusingtheirstandardprocessesandthird
partyvendorsources.Thefiguresshowninthefirsttablearebasedonthehaircuts(alsocalledmargins)
appliedtothevalueofthesecuritiesusedascollateral,expressedasapercentofthevaluationgiventothe
securities.Thecollateralvaluesusedforcalculatingthetotalsarethevalueofcollateral(includingaccrued
interest)beforethehaircut.
a. Foreachassetgroup,amedianvalueandarangeofhaircutsareshown.
b. ConcentrationdataisshownforthethreelargestDealerholdingsbothbyassetgroupandfortheentire
populationoftripartyrepo.Fortheentirepopulation,thedollarvalueofthetopthreelargestDealer
portfolioswassummedanddividedbythetotaldollarvalueofalltripartyDealerportfolios.

5. Thedatasetcomprises5,419individualrepurchaseagreements(deals).Itiscommonpracticetousea
combinationofsecuritiesfromtwoormoreassetgroupstoserveasthecollateralforasinglerepurchase
agreement.Securitiestakenfromeachassetgroupmayhaveadifferenthaircutappliedtothem.For
example,amixofTreasurysecurities,agencydebentures,andagencyMBScouldcollateralizeasingle
repurchaseagreement.Therespectivehaircutscouldbe2percent,2.5percent,and3percent.Inthis
example,thesinglerepurchaseagreementwouldyieldthesethreedatapoints.Asaresult,inthehaircut
table,thenumberofdatapoints(orcollateralallocations)is7,774whichisgreaterthanthenumber(5,419)of
repurchaseagreements.

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6.

Definitionofassetgroups
Assetgroup
AssetBackedSecurities
(InvestmentGradeand
NonInvestmentGrade)

AgencyCMO
(CollateralizedMortgage
Obligations)

AgencyMBS(Mortgage
BackedSecurities)
AgencyDebenturesand
AgencyStrips

PrivateLabel
CollateralizedMortgage
Obligations(CMOs),
(InvestmentGradeand
NonInvestmentGrade.

CorporateSecurities
(InvestmentGradeand
NonInvestmentGrade

Definition
Securitiesthataresecuredbycashflowsofadiscretepoolofreceivablesor
otherfinancialassets,furtherdividedbythefollowing,ifthe1%threshold*
ismet:
ABSInvestmentgradesecuritiesand
ABSNonInvestmentgradesecurities.

REMICandCMOsecuritiesissuedbyGSEssupportingthehousingmarket
FNMA,FMAC,andGNMA.

MBSsissuedbyGovernmentSponsoredEnterprises(GSEs)thatsupportthe
housingmarketFNMA,FMAC,andGNMA.

DebtsecuritiesissuedbyfederalagenciesorGSEs.TheseagenciesandGSEs
are:FNMA,FMAC,GNMA,FHLB,TVA,SLMA,REFCO,FICO,USPS,FFCB,
FMHA,FAMC,FCFAC,andFLBB,furtherdividedbythefollowing,ifthe1%
thresholdismet:
AgencyDebenturesexcludingStripsand
AgencyStrips.

CMOsissuedbycorporationsorprivateinstitutions,furtherdividedbythe
following,ifthe1%thresholdismet:
CMOsPrivateLabelInvestmentgradeand
CMOsPrivateLabelNonInvestmentgrade.

Unsecureddebtsecuritiesissuedandguaranteedbyacorporation,further
dividedbythefollowing,ifthe1%thresholdismet:
CorporateInvestmentgradeand
CorporateNonInvestmentgrade.

Equities
CommonandPreferredStock,ETFs,ADRs,UITs,MutualFunds,Warrants&
Rights,andConvertibleBonds.

MoneyMarket
CP,CDs,BAs,andBankNotes.

USTreasuriesexcluding
Bills,bonds,andnotesissuedbytheU.S.Treasury,includingTIPS,further
StripsandUSTreasury
dividedby:
Strips
USTreasuriesexcludingStripsand
USTreasuryStrips.
*Pleaseseeexplanatorynote7foradditionaldetailregardingthe1%threshold.

7. Amaterialitythresholdof1percentoftotalmarketvalueofsecuritiesallocatedintripartyrepoisappliedfor
inclusionofanassetgroupinthehaircuttables.ForthetablesbasedonMarch9data,thethresholdfor
inclusionofanassetgroupis$17billion,oronepercentof$1.7trillion.Thesumofcollateralvalueofthe
assetgroupsnotshownwithintheOthercategoryis$19.49billion,alittlemorethan1percentoftotal
collateralvalue.Asthetotalcollateralvalueintripartyrepoagreementsrisesorfallsovertime,thethreshold
valuewillchangeaccordingly.Thismayresultintheinclusionofmoreorfewerassetgroupsinthemonthly
reports.

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a.

b.

AlthoughtheTaskForcemembersrequestedthathaircutdatabebrokenoutbyInvestmentGradeand
NonInvestmentGradeforthefollowingassetclasses:ABS,CMOPrivateLabelsecuritiesandCorporate
Securities,thisbreakoutisonlydisplayedifthe1%thresholdismet.Ifthisthresholdisnotmet,the
InvestmentGradeportioniscombinedwiththeNonInvestmentGradeportionforthepurposesof
displayinghaircutdata.Similarly,whileTaskForcemembersalsorequestedthatAgencyStripsbebroken
outfromAgencyDebentures,thisdetailisonlydisplayedforhaircutdataifitmeetsthe1%threshold.
Additionalassetgroupsthatdonotmeetthe1%thresholdandthereforedonotappearinthecurrent
haircuttableare:CollateralizedDebtObligations,InternationalSecurities,MunicipalSecurities,Trust
Receipts,andWholeLoans.MunicipalSecuritiesisthelargestoftheassetgroupsthatdonotappear.

Bothsidesofthetripartyrepomarketarecharacterizedbyatleastmoderatelevelsofconcentration.
a. Onthecashborrowingside,thebrokerdealersthataremostactiveinthemarketengageinasubstantial
numberofrepocontracts.Asaresult,severalofthedatapointshavethesamebrokerdealerasthe
counterparty.Thispatternistruefortheentiredatasetaswellasforaparticularassetgroup.
b. Onthecashlendingside,entitiesthataremostactiveinthemarketalsoengageinasubstantialnumber
ofrepocontracts,andasaresult,severalofthedatapointshavethesamefinancialinstitutionorlegal
entityasthecounterparty.Inthecaseofmoneymarketmutualfunds,thispatternisdescribedintheir
semiannualreports.Inthereports,aMoneyMarketMutualFund(MMMF)listsitsentireportfolio
holdings,includingrepurchaseagreements.AlargeMMMFmaybeengagedinasmanyas50repurchase
agreementsonagivenday.
c. Concentrationonbothsidesofthemarketalsoyieldssomerepetitioninthedatasetforaspecific
counterpartypair(forexample,BarclaysCapitalascashborrower,andFidelityCashReservesascash
lender).Therepetitionsoccurnotonlyinthedatasetasawhole,butalsoforspecificassetgroups(for
example,equities).Ineffect,therearefewerindependentobservationsthanthenumberofcollateral
allocations,whicheachyieldsonedatapoint.

Therepetitionofcounterpartypairsinthedataisanadditionalreasontoestablishathresholdsuchasonepercent
oftotalcollateralvaluebeforeincludinganassetgroupinthetable.
8.

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Annex4TripartyRepoInfrastructureReformTaskForceandWorkstreamParticipants
TriPartyRepoTaskForceMembers
Role
Member
TaskForceChairman
DarryllHendricks
PRCOversight
DonMonks
ClearingBanks
ArtCertosimo

DavidWeisbrod
Dealers

Investors

HedgeFunds
Utilities
IndustryGroups

Secretariat

TechnicalAdvisors
FederalReserveBoardof
Govs.
FRBNY

SEC

DickSeitz
DavidLohuis
BarrieRingelheim
PaulScheufele
TomDevine
RobinVince
CraigDelany
TomWipf
ColinParry
RobertDolecki
DebbieCunningham
NormLind
LaurieBrignac
SeanDillon
DanDufresne
MurrayPozmanter
BrianReid
RobToomey
CarlKennedy
EmilyGu
MicheleBraun
JoannaWisniecka
KirstenHarlow

MattEichner
JeffStehm
LucindaBrickler
LarryRadecki
BrianBegalle
MichaelAlix
ChrisBurke
AntoineMartin
MichaelSchussler
MikeMacchiaroli
RichardBookstaber
DanieleMarchesani

Alternate

JamesMalgieri
SandieOConnor
KellyMathieson

JohnFeraca
ThomasMellina

JoeRice
MichaelKurlander

EdCorral

GaryChan

Firm
UBSInvestmentBank
BNYMellon
BNYMellon
JPMorganChase
BankofAmerica
BarclaysCapital
CitigroupGlobalMarketsInc
CreditSuisse
DeutscheBank
GoldmanSachs
JPMorganChase
MorganStanley
UBSInvestmentBank
FannieMae
FederatedInvestors
Fidelity
Invesco
StateStreet
CitadelInvestmentGroup
DTCC
ICI
SIFMA
ManagedFundsAssociation
UBSInvestmentBank
FRBNYPaymentsPolicy
FRBNYPaymentsPolicy
FRBNYPaymentsPolicy

Research&Statistics
RsvBkOps&PaymentSys.
PaymentsPolicy
PaymentsPolicy
BankSupervision
CreditRisk
MarketsGroup
Research
Legal
Trading&Markets
Risk,Policy&Fin.Innovation
InvestmentManagement
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OperationalWorkstream
Member
EdCorral(Lead)
MichaelKurlander(Lead)
GaryChan
RicardoS.Chiavenato
DanDufresne
EnricoGiardina
EmilyGu
ElkeJakubowski
PeterKelly
MikeLimeri
JamesMalgieri
KellyMathieson

Firm
MorganStanley
GoldmanSachs
DTCC
JPMorganChase
CitadelInvestmentGroup
MorganStanley
UBSInvestmentBank
DTCC
DTCC
MorganStanley
BNYMellon
JPMorganChase

Member
SeanMcWeeney
KarlMocharko
AlMorabito
JohnMorik
JeffPetro
MurrayPozmanter
MarkRobinson
PaulScheufele
MichaelSchroeder
MarkDTrivedi
JamesWhite
JohnMorik

Firm
GoldmanSachs
FederatedInvestors
FederatedInvestors
BNYMellon
FederatedInvestors
DTCC
BNYMellon
CreditSuisse
BNYMellon
JPMorganChase
GoldmanSachs
BNYMellon

Member
SharonLester
LarryMahler
JamesMalgieri
KellyMathieson
ShirleyMcCoy
SeanMcWeeney
KarlMocharko
JohnMorik
SandieOConnor
JohnPalchynsky
JeffPetro
MurrayPozmanter
ChristianRasmussen
PaulRitchie
JeffreyScott
DickSeitz
BrianSmith
DouglasSorin
BrianSwann
BrandyTalge
MarkTrivedi
GilbertVinluan

Firm
Invesco
CreditSuisse
BNYMellon
JPMorganChase
JPMorganChase
GoldmanSachs
FederatedInvestors
BNYMellon
JPMorganChase
Barclays
FederatedInvestors
DTCC
UBSInvestmentBank
UBSInvestmentBank
UBSInvestmentBank
BankofAmerica
Invesco
UBSInvestmentBank
GoldmanSachs
Invesco
JPMorganChase
BankofAmerica

TacticalReductionsinIntradayExposureWorkstream
Member
Firm
PaulScheufele(Lead)
CreditSuisse
MichaelAlbanese
JPMorganChase
JimBeckenhaupt
Barclays
TonyBlasi
CreditSuisse
LaurieBrignac
Invesco
JohnButler
UBSInvestmentBank
FrancescoCafagna
GoldmanSachs
GaryChan
DTCC
RicardoChiavenato
JPMorganChase
EdwardCorral
MorganStanley
CraigDelany
JPMorganChase
SeanDillon
StateStreet
LindaFelchak
Invesco
JohnFeraca
Barclays
DanielFleming
Barclays
KevinGaffney
Fidelity
EmilyGu
UBSInvestmentBank
JacquelineHakimzadeh
Invesco
JamesHraska
Barclays
JosepheJohnston
BankofAmerica
CraigJones
Barclays
MichaelKurlander
GoldmanSachs

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LegalWorkstream
Member
MichaelSchussler(Lead)
TedAmley
JeffAronson
PeterBonanno
MaryBreslin
GaryBuki
DeenaC.Ethridge
AlexanderGordon

Firm
FRBNY
MorganStanley
JPMorganChase
GoldmanSachs
DeutscheBank
BNYMellon
StateStreet
GSAM

Member
MichaelKurlander
JosephLallande
MosesLin
KarlMocharko
JenniferMaloni
KarrieMcMillan
KevinMeagher
FrankJNasta

Citibank
ICI
Invesco/StradleyRonon
JPMorganChase
DeutscheBank
FederatedInvestors/Reed
Smith
Fidelity

JamesPanella
AnastasiaShefflerWood
RobertToomey
KathleenTripp
AndrewWaskow
KeithWeller

MarginingWorkstream
Member
SethKammerman(Lead)
StephenBrennan
LaurieBrignac
KevinCaffrey

Firm
GoldmanSachs
BNYMellon
Invesco
BNYMellon

Member
SueHill
SanjaHukovic
JosephJohnston
StephenKeen

RicardoChiavenato
RichardCoffin
MichaelCurran
CraigDelany
TomDevine
KeithDonohue
DanDufresne
JohnFeraca
EricGraham
KirstenHarlow

JPMorganChase
BarclaysCapital
UBSInvestmentBank
JPMorganChase
DeutscheBank
BNYMellon
CitadelInvestmentGroup
BarclaysCapital
Fidelity
FRBNY

DavidLamb
MattLeisen
LawrenceRadecki
MikeReiffsteck
MarkRobinson
JeffreyScott
GuidoStoremer
MarkTrivedi
JoannaWisniecka

Firm
FederatedInvestors
UBSInvestmentBank
BankofAmerica
FederatedInvestors/Reed
Smith
JPMorganChase
GoldmanSachs
FRBNY
BankofAmerica
BNYMellon
UBSInvestmentBank
UBSInvestmentBank
JPMorganChase
FRBNY

Firm
DTCC
JPMorganChase
DTCC

Member
ElkeJakubowski
PeterKelly

Firm
DTCC
DTCC

ShannonHales
JaneHeinrichs
DebraHong
GailInaba
BruceIsmael
StephenKeen
JasonKetchen

ToddZerega

Firm
GoldmanSachs
InvescoAim
GSAM
FederatedInvestors
BankofAmerica
ICI
Fidelity
JPMorganChaseAsset
Management
MorganStanley
Invesco/StradleyRonon
SIFMA
JPMorganMutualFund
GoldmanSachs
UBSGlobalAsset
Management
FederatedInvestors/Reed
Smith

LiquidationWorkstream
Member
MurrayPozmanter(Lead)
DavidWeisbrod(Lead)
GaryChan

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TriPartyRepoInfrastructure

TaskForceReport

Annex5Bibliography

Abate,Joseph,MoneyMarkets:TriPartyRepoConcerns,BarclaysCapitalResearch,USEconomics&Rates
Strategy,March12,2009.

BankforInternationalSettlements,TheRoleofMarginRequirementsandHaircutsinProcyclicality,
www.bis.org/publ/cgfs36.htm,March2010.

BankforInternationalSettlements,TheRoleofValuationandLeverageinProcyclicality,
www.bis.org/publ/cgfs34.htm,April2009.

Brunnermeier,MarkusK.andLasseHejePedersen,MarketLiquidityandFundingLiquidity,ReviewofFinancial
Studies,2009,Vol.22,No.6,pp.22012238,December2008.

Dudley,William,SomeLessonsfromtheCrisis,RemarksattheInstituteofInternationalBanksMembership
Luncheon,October13,2009.

Duffie,Darrell,HowBigBanksFailandWhattodoAboutIt,March2010,Manuscript,forthcomingPrinceton
UniversityPress.

Ewerhart,ChristianandJensTapking,RepoMarkets,CounterpartyRisk,andthe2007/2008LiquidityCrisis,
WorkingPaper909,EuropeanCentralBank,2008.

Gorton,Gary,SlappedintheFacebytheInvisibleHand:ThePanicof2007,OxfordUniversityPress,2010.

Hordahl,PeterandMichaelR.King,DevelopmentsinRepoMarketsDuringtheFinancialTurmoil,BISQuarterly
Review,www.bis.org/publ/qtrpdf/r_qt0812.pdf,December2008.

Scott,KennethandJohnTaylor,eds.EndingGovernmentBailoutsasweKnowThem,HooverPress,2010.

Tuckman,Bruce,SystemicRiskandtheTriPartyRepoClearingBanks,TechnicalReport,CenterforFinancial
Stability,February2010.

Valukas,Anton,ReportofAntonR.Valukas,ExaminerInre:LehmanBrothersHoldingsInc.,etal,March2010.

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