Clarification of Collateral Tranches on Desk RP Operations - Operating Policy

Markets

Foreign Exchange

Open Market Operations

Temporary

Permanent

Federal Funds Data

System Open Market Account Holdings

Annual Reports

Operating Policies

Securities Lending

Term Securities Lending Facility

Primary Dealer Credit Facility

Primary Dealers

Operating Policy

Clarification of Collateral Tranches on Desk RP Operations

August 10, 2007

Typically, when the Desk arranges RPs it accepts propositions from dealers in three collateral tranches.

In the first tranche, dealers may pledge only Treasury securities.
In the second tranche, dealers have the option to pledge federal agency debt in addition to Treasury securities.
In the third tranche, dealers have the option to pledge mortgage-backed securities issued or fully guaranteed by federal agencies in addition to federal agency debt or Treasury securities.

From time to time, for operational simplicity, the Desk has arranged RPs just in the third tranche, under which dealers have the option to pledge either mortgage-backed securities issued or fully guaranteed by federal agencies, federal agency debt, or Treasury securities.