Dan Reichgott and Lisa Chung

The New York Fed has unique responsibilities to support the Federal Reserve System’s monetary policy and financial stability goals. As part of that, the New York Fed participates in the foreign exchange (FX) market by intervening when directed by the Federal Open Market Committee and U.S. Treasury, conducting FX transactions for official sector account holders, managing international dollar liquidity facilities, and monitoring global market developments. It also sponsors the Foreign Exchange Committee (FXC), represents the U.S. on the Global Foreign Exchange Committee (GFXC), and convenes the industry and public sector from around the world for FX market structure conferences.

Adam Copeland, Ellen Correia Golay, and Agata Zhang

The Treasury Market Practices Group (TMPG), a New York Fed-sponsored group of market professionals, recently released a white paper and proposed recommendations on margin practices for repurchase agreements, or repos, involving U.S. Treasury securities. The white paper, based on discussions with market participants and data from the U.S. Treasury Department’s Office of Financial Research, describes the current risk management practices in the Treasury repo market for mitigating counterparty risk exposures, or the potential losses from a counterparty defaulting before final settlement of a financial transaction. It also identifies the resulting risk and resiliency issues. Based on this work, the proposed updates to the TMPG’s Best Practices include a recommendation that all Treasury repo trades should include prudent haircuts, or margin, on the value of the securities, in concert with other risk management techniques. In this article, we highlight the main findings of the white paper that led to this proposed best practice recommendation, with a focus on the non-centrally cleared bilateral repo market.

Dan Reichgott, Fabiola Ravazzolo, Lisa Chung, and Alain Chaboud

The foreign exchange (FX) market is the largest financial market by trading volume in the world, with average daily turnover of approximately $7.5 trillion. It has become increasingly complex over time, as its structure has undergone shifts in the types of market participants, the jurisdictions in which they transact, and the mix of instruments traded. The FX market also plays a critical role in supporting international trade, investment, and finance. With this in mind and in light of its role in monitoring and participating in the market, the Federal Reserve Bank of New York hosted the FX Market Structure Conference in November of last year.