FR 2021-01217

The document under review is a public notice from the Board of Governors of the Federal Reserve System inviting comments on a new proposal designated as FR 2956. This proposal mandates specific financial institutions to report their transactions involving U.S. Treasury securities and mortgage-backed securities daily. The notice outlines the methods for submitting comments and invites public input by March 22, 2021, before the rule is potentially implemented later in 2021 under the authority of the Federal Reserve Act.

General Summary

The document outlines a new proposal by the Federal Reserve Board to gather detailed transaction data from selected financial institutions. This data collection aims to enhance the understanding and oversight of transactions in U.S. Treasury securities and agency mortgage-backed securities. Comments from the public are encouraged to ensure diverse feedback and considerations before the rule is finalized.

Significant Issues and Concerns

One notable issue is the clarity of the process for how public comments will influence the final decision. The document solicits input but does not fully describe how this input will be incorporated into the decision-making process. This lack of transparency might lead to skepticism among stakeholders about the effectiveness of their contributions.

Additionally, the document mentions estimated burden hours and the number of respondents but fails to elaborate on the methodology used to calculate these estimates. Without this information, stakeholders may question the accuracy and fairness of these projections.

Further, the use of technical language and references to various URLs could overwhelm readers, particularly those less familiar with financial terminology and online resources. Terms like "Trade Reporting and Compliance Engine (TRACE)" and "Committee on Uniform Securities Identification Procedures (CUSIP)" are not explained, potentially alienating individuals without a financial background.

The statement that the information collected will not be confidential could also be a cause for concern. Respondents might fear for their privacy or the security of their data, knowing that the information they submit will be made public.

Impact on the Public and Stakeholders

Broadly, this proposal could affect financial institutions that have high volumes of securities transactions by increasing their reporting requirements, potentially leading to higher operational costs. These institutions may need to adjust their reporting systems or processes to comply with the new expectations.

For the general public, the enhanced transparency and oversight that this reporting seeks to achieve could lead to more stable financial markets. This stability benefits consumers indirectly by fostering a more resilient economic environment.

However, specific stakeholders, such as small financial institutions, might face challenges due to the resource requirements needed to comply with daily reporting demands. Larger institutions might absorb these changes more easily due to more robust infrastructure and resources.

Overall, while the proposal seeks to enhance regulatory oversight and transparency in financial markets, it raises several concerns regarding data confidentiality, clarity of process impacts, and the technical accessibility of the instructions provided. The successful implementation of this proposal will depend on how effectively these concerns are addressed and communicated to all stakeholders.

In the document, the focus is on new reporting requirements related to Treasury Securities and Agency Debt and Mortgage-Backed Securities. A critical financial reference is the threshold for reporting: any national bank, state member bank, state non-member bank, savings association, or U.S. branch and agency of a foreign bank that files a Notice of Government Securities Broker or Government Dealer Activities Form with average daily transaction volumes over $100 million for U.S. Treasury debt, or over $50 million for agency-issued debt and MBS (mortgage-backed securities), will be subject to these requirements.

Summary of Financial References:

1. Threshold for Reporting:
2. The document establishes that depository institutions need to meet specific thresholds to be subject to the reporting requirements. These thresholds are set at $100 million for U.S. Treasury securities and $50 million for agency-issued debt and mortgage-backed securities (MBS). This delineation is crucial as it specifies who will be included under these new regulations based on the volume of their transactions.

Connection to Identified Issues:

1. Clarity on Impact:

2. While the document specifies transaction volume thresholds, there’s less clarity on how crossing these thresholds impacts financial operations or compliance costs for the institutions involved. Specifying these financial aspects through clearer examples or scenarios could be helpful for better understanding.

3. Burden and Cost Estimates:

4. The document estimates annual burden hours at 16,500. Yet, it does not thoroughly explain how such numbers were calculated or how they might translate into financial or operational burdens for the affected institutions. Including a breakdown of these calculations could provide more transparency.

5. Privacy and Confidentiality Concerns:

6. The mention that collected information will not be considered confidential could raise questions about data privacy, potentially impacting financial decision-making or data sharing by these institutions. Establishing how such information might be protected or anonymized could address these concerns.

7. Complexity of Financial Terms:

8. The reference to financial instruments and systems like the Trade Reporting and Compliance Engine (TRACE) and Committee on Uniform Securities Identification Procedures (CUSIP) could be more accessible if paired with user-friendly explanations. Simplifying or clarifying these terms would help stakeholders understand their implications and costs.

Overall, while the financial references are clearly delineated, there's room for enhancing transparency and understanding, particularly in clarifying the operational and financial impacts of these proposed reporting requirements.