The Treasury Department's Office of Financial Research is calling for comment on a proposed rule to collect data on centrally cleared repurchase agreement transactions, which make up roughly a quarter of all repo market transactions
The OFR said in the notice published in Tuesday's Federal Register that collecting the data would close the data gap on such transactions and enhance the Financial Stability Oversight Council's ability to monitor potential risks to U.S. financial stability.
Collecting the data also would fill a need for an alternative reference rate, created by the declining use of the U.S. dollar London interbank offered rate, following cases of misconduct.
"In the wake of scandals arising from misconduct related to LIBOR submissions, banks have become increasingly reluctant to participate in the U.S. dollar LIBOR panel, and market participants generally have trended away from unsecured funding and toward secured funding transactions," a 2017 OFR report said.
After those abuses, the Federal Reserve convened the industry-led Alternative Reference Rates Committee, which chose the secured overnight financing rate as the preferred LIBOR alternative. The Federal Reserve began publishing it in April this year.
The OFR said in the proposed rule that only about a quarter of current benchmark 3-month U.S. dollar LIBOR submissions are based on actual transactions because of the low volume of unsecured funding transactions. "With fewer transactions, panel members are less able to rely on arm's-length transactions as the basis for their submissions, which subjects participating firms to possible criticism or litigation risk," the Federal Register notice said.
The FSOC first recommended collecting the repo data in a 2016 annual report to Congress.
"While some members of the council have access to certain data about the repo market, the data are insufficient to draw a complete picture of U.S. repo market activity and the associated vulnerabilities," the proposal said. While this proposed data collection would only cover a quarter of the repo market, when combined with data from other regulators, it would allow access to transactional data on approximately half of U.S. repo market activity, the proposal said.
The proposed rule would require data from central counterparties with average daily total open repo commitments of at least $50 billion, which as of today would only apply to the Fixed Income Clearing Corp. Data would be submitted directly to the Federal Reserve Bank of New York and the Federal Reserve Board would act as the OFR's data collection agent.
"The proposed rule is important to inform U.S. financial regulators and market participants and will strengthen financial markets with minimal regulatory burden," Acting OFR Director Ken Phelan said in the statement.
Comments are due by Sept. 10.
