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Frequently Asked Questions Relating to Treasury's Large Position Recordkeeping and Reporting Rules - SECTION 420.3 - REPORTING

3.1) Reporting Requirements and Turn-Around Time

3.1.1) What procedures will Treasury use to issue and disseminate the notice requesting large position reports?

Treasury will provide notice requesting large position reports by issuing a press release and subsequently publishing a notice in the Federal Register. The press release will be made available to major news and financial organizations and electronic wire services for dissemination. The announcement requesting large position reports will also be provided to several industry associations, so that they can distribute the announcement to their members. An electronic mailing list for notifications of calls for large position reports is available at www.treasurydirect.gov. Anyone signing up on this list will receive e-mail notifications of Treasury calls for Large Position Reports. It is the responsibility of market participants to take the necessary actions to be aware of requests by the Treasury for large position reports.

3.1.2) When will the large position reports be due?

Large position reports must be received by the Federal Reserve Bank of New York before noon Eastern time on the fourth business day after the issuance of the Treasury press release calling for large position information. The actual date on which reports are due will be provided in the press release.

3.1.3) Who must sign the large position report?

The large position report must be signed by one of the following: the chief compliance officer; chief legal officer; chief financial officer; chief operating officer; chief executive officer; or managing partner or equivalent. The designated filing entity must also include in the report, immediately preceding the signature, a statement of certification (see Sample Large Position Report).

3.1.4)Where should the large position reports be filed?

Large position reports must be filed with the Government Securities Dealer Statistics Unit of the Federal Reserve Bank of New York, 33 Liberty Street, 4th Floor, New York, NY. The reports may be filed by facsimile at 212-720-5030 or delivered hard copy.

3.1.5) When Treasury makes a request for large position reporting on a particular security, will $2 billion be the large position threshold?

The $2 billion level is an absolute minimum reporting amount (floor) below which reports will not be requested.

3.1.6) Must large position reports be submitted if the reporting entity's reportable position does not equal or exceed the large position threshold announced in a request for large position reports?

No, large position reports are not required to be submitted unless the reporting entity's reportable position equals or exceeds the large position threshold announced by Treasury in a request for large position reports. However, large position reports may be submitted voluntarily when the reporting entity's reportable position is below the announced threshold if the reporting entity considers its reportable position to be relatively close to the announced threshold.

3.1.7) Are position amounts on the large position report recorded on a trade date basis or settlement date basis?

All position amounts on the large position report (including the memorandum items) must be reported on a trade date basis, at par in millions of dollars, and as of the close of business of the reporting date(s) specified in the notice. For Treasury inflation-protected securities, the par amount is the stated value of a security at original issuance.

3.1.8) Can Treasury issue a request for large position information for more than one CUSIP (i.e., security) and/or for more than one reporting date in a single request?

Yes, Treasury can request large position reports for more than one CUSIP and also for more than one reporting date. In those instances, separate large position information must be submitted for each CUSIP and each reporting date.

3.1.9) What if one or more of a reporting entity's foreign affiliates is closed (due to a holiday) during the reporting time frame?

Treasury is sympathetic to the concerns regarding the time and effort needed to compile, aggregate, and file the large position reports, particularly where reporting entities have foreign affiliates. However, significant changes were made in the final rules to reduce the burdens associated with complying with the large position rules. Accordingly, all reportable positions of foreign affiliates must be included in the large position report to meet the three and one-half business day reporting requirement, regardless of holidays.

3.1.10) Is a custodian required to report on positions it holds in a safekeeping capacity?

No, a custodian is not required to report on such positions, provided it does not have the authority to exercise control (i.e., investment discretion) over the purchase, sale, retention or financing of specific Treasury securities. However, if the custodian has the authority to exercise control, the custodian would be required to report on such positions.

3.1.11) Does a custodian have an obligation to inform its customers of the large position recordkeeping and reporting requirements?

No, under Treasury's large position rules, neither a custodian nor an executing broker-dealer is obligated to inform its customers of these recordkeeping and reporting requirements.

3.1.12) Will Treasury release the large position information to the public?

No, the Government Securities Act Amendments of 1993, which granted Treasury the authority to write these rules, specifically provide that Treasury will not be compelled to disclose publicly any information required to be kept or reported. In particular, such information is exempt from disclosure under the Freedom of Information Act.

3.2) Net Trading Position - Futures Contracts

3.2.1) Are futures contracts to be included in the computation of the net trading position if securities designated as “cheapest to deliver” are specified for delivery to close out the contract?

No, since securities other than the one that is the subject of the call for a large position report can be delivered. The security that is the “cheapest to deliver” frequently changes over the life of a futures contract such that the security that actually gets delivered may not be known until the settlement date of the contract. Since the “cheapest to deliver” security may be one of several different securities, albeit one of those that is the subject of a large position report, a futures contract that involves delivery of the “cheapest to deliver” security would not be included in the computation of the net trading position.

3.3) Gross Financing Position

3.3.1) Two aggregating entities are part of the same reporting entity and are not recognized as separate bidders in Treasury auctions. If the two aggregating entities conduct intercompany financing transactions with one another involving the same security (i.e., the same CUSIP and par amount), must both of these transactions be included in the gross financing position of the reporting entity's large position report?

In this case, the reporting entity need only count the security once when preparing a large position report. This approach allows firms to avoid multiple counting within a reporting entity. For example, assume that aggregating entity A and aggregating entity B are part of the same reporting entity. Aggregating entity A enters into a reverse repo and receives $100 million of a security as collateral. It then repos out the $100 million security to aggregating entity B. The reporting entity, upon submitting a large position report for the CUSIP used in this example, would not have to include both $100 million transactions when aggregating and reporting its gross financing position -- even though both aggregating entities would have conducted reverse repos.

Similarly, assume that aggregating entity A has a $100 million proprietary long position and repos out the security to aggregating entity B. The reporting entity need only include the security once when it aggregates information for a large position report. The $100 million is either included in its net trading position (attributable to aggregating entity A's proprietary long position) or in its gross financing position (attributable to aggregating entity B's reverse repo).

3.3.2) Two aggregating entities are part of two different reporting entities but are affiliated within a larger organizational structure (they have received recognition as separate bidders or separate reporting entities). If the two aggregating entities conduct intercompany financing transactions with each other involving the same security (same CUSIP and par amount), how must these transactions be treated by the respective reporting entities when aggregating gross financing position information for large position reports?

Even though the transactions involve the same security, they must be included in the large position computations of each aggregating entity's respective reporting entity. If aggregating entities A and B conduct transactions as described in question 3.3.1 and are affiliated but part of separate reporting entities, the reporting entity for aggregating entity A would have to count the $100 million security in its large position computation as either a gross financing position or a net trading position, while the reporting entity for aggregating entity B would be required to include the $100 million security in its gross financing position. This approach applies in all cases where aggregating entities A and B belong to separate reporting entities -- regardless of whether they are affiliated.

The rules require this type of reporting even though the security is no longer in the possession of aggregating entity A -- the security has been contemporaneously repoed out to aggregating entity B -- since both reporting entities control the security (based on the definition of control in the large position rules). This approach will result in some multiple counting by reporting entities, but the resulting multiple counting will provide additional information about entities that have various legal claims to a security and that may potentially benefit from any possible market disruptions.

3.3.3) How are forward start reverse repurchase transactions treated for large position reporting purposes? Must they be included in the calculation of the reporting entity's reportable position before the settlement date of the opening leg since the reporting entity has not yet received the security?

Note: Forward start reverse repos must be included in the gross financing computation only if such transactions require a specific CUSIP as collateral -- the same CUSIP that is the subject of a call for large position reports. Forward start reverse repos would not be included in the computation if such transactions allowed for a range of possible securities as collateral (e.g., general collateral forward start reverse repos). This treatment is consistent with the treatment of “cheapest to deliver” futures contracts in question 3.2. The forward start reverse repo in the following example requires the use of a specific CUSIP as collateral. For purposes of the following example, the only transactions for the security are the ones described, and par value is equal to $100.

Assume that on 6/15/XX, a reporting entity enters into a trade to sell a $100 Treasury security for settlement on 6/16/XX. If Treasury requests large position reports for positions in that CUSIP to be calculated as of 6/15/XX, the reporting entity would report the following:

Net Forward Settling Positions Including Next-Day Settling -$100
Line 1 Total Net Trading Position -$100
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $0

On 6/16/XX, the reporting entity then enters into a term reverse repo whose underlying collateral is a $100 Treasury security (same CUSIP as above), with same-day settlement. The date of the termination (when the closing leg settles) is 6/20/XX. In addition, the $100 cash market sale specified above settles as scheduled on 6/16/XX (the firm uses the security obtained through the term reverse repo to make delivery). If Treasury requests large position reports for positions in that CUSIP to be calculated as of 6/16/XX, the reporting entity would report the following:

Line 1 Total Net Trading Position $0
Reverse Repurchase Agreement Term $100
Line 2 Total Gross Financing Position $100
Line 3 Net Fails Position $0

On 6/17/XX, the reporting entity then enters into a trade to buy $100 of a Treasury security (same CUSIP as above) to be settled on 6/23/XX. That same day (6/17/XX), the reporting entity enters into a forward start reverse repo whose underlying collateral is a $100 Treasury security (same CUSIP). The date of the initiation (opening leg settlement date) of the forward start reverse repo is 6/21/XX, and the date of the termination (closing leg settlement date) is 6/22/XX. If Treasury requests large position reports for positions in that CUSIP to be calculated as of 6/17/XX, 6/18/XX, or 6/19/XX, the reporting entity would report the following:

Net Forward Settling Positions Including Next-Day Settling $100
Line 1 Total Net Trading Position $100
Reverse Repurchase Agreements Term $100
Overnight and Open $100
Line 2 Total Gross Financing Position $200*
Line 3 Net Fails Position $0
* As shown above, forward start reverse repos requiring the use of a specific CUSIP as collateral must be included in the gross financing computation as of the trade date, just as forward settling cash trades are included in the net trading position as of the trade date (see 61 FR 48343, September 12, 1996).

If Treasury requests large position reports for positions in that CUSIP to be calculated as of 6/20/XX, the reporting entity would report the following:

Net Forward Settling Positions Including Next-Day Settling $100
Line 1 Total Net Trading Position $100
Reverse Repurchase Agreements Overnight and Open $100
Line 2 Total Gross Financing Position $100*
Line 3 Net Fails Position $0 *
The gross financing position decreased by $100 because the closing leg of the term reverse repo entered into on 6/16/XX settled.

3.3.4) How are dollar rolls treated for large position reporting purposes?

Dollar rolls should be reported in the gross financing position under “other financial transactions” if the securities are being received in, or in Memorandum 1 under “other financial transactions” if the securities are being delivered out.

Note: Dollar rolls must be included in the gross financing computation only if such transactions require a specific CUSIP as collateral -- the same CUSIP that is the subject of a call for large position reports. Dollar rolls would not be included in the computation if such transactions allowed for a range of possible securities as collateral (e.g., general collateral dollar rolls).

3.4) Net Fails Position

3.4.1) What is the treatment of fails in the large position report?

Note: For purposes of the following answers, all transactions are at par value. Also, Line 3 Net Fails Position equals fails to receive less fails to deliver. If the difference is equal to or less than zero, report 0 (see section 420.2(e) of the large position rules). Memorandum 2 reflects the gross par amount of fails-to-deliver (also included in Line 3).

The Cash Market -- Fails-to-Receive. Firm A has $100 of a Treasury security in its inventory. On day one (trade date), the firm enters into two transactions involving the same CUSIP as the security in the firm's inventory: a cash market purchase of $70 and a cash market sale of $30, both for regular-way (i.e., next-day) settlement. On day two, Firm A fails to receive the $70 security and fails to deliver the $30 security.

Treasury requests large position reports for positions to be calculated as of day one (trade date). Firm A's large position report would include the following entries:

Cash/Immediate Net Settled Positions $100
Net Forward Settling Positions Including Next-Day Settling $40
Line 1 Total Net Trading Position $140
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $0

If Treasury requests large position reports for positions to be computed as of day two (the settlement date of the transactions), the firm's large position report would include the following entries:

Cash/Immediate Net Settled Positions $100
Line 1 Total Net Trading Position $100
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position
* ($70 - $30 = $40)
$40*
Memorandum 2 (Gross Fails to Deliver) $30

The explanation for this result is as follows. As clarified in the preambles of both the proposed and final large position rules, a position remaining unsettled after its scheduled settlement date (the term “settlement” has the same meaning as “clearance” in this document) is not to be included in the computation of the net trading position (see 60 FR 65219, December 18, 1995 and 61 FR 48345, September 12, 1996, respectively). Accordingly, when Treasury requests the computation for day two, the $40 net position that was formerly a net long calculation on day one must be removed from the net trading position and included in the net fails position (as fails-to-receive minus fails-to-deliver). The $30 fail-to-deliver must be reported in Memorandum 2 (final rule amendment issued on December 18, 2002).

The Cash Market -- Fails-to-Deliver. On day one, Firm A is long $100 of a Treasury security, which is held in its inventory. That same day, the firm enters into a trade to sell $40 of the security for regular-way (i.e., next day) settlement. There was some confusion regarding the delivery instructions, however, and the firm failed to deliver the security on day two.

Treasury requests large position reports for positions to be calculated as of day one (trade date). The firm would include the following entries in its large position report:

Cash/Immediate Net Settled Positions $100
Net Forward Settling Positions including Next-Day Settling -$40
Line 1 Total Net Trading Position $60
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $0

If Treasury requests large position reports for positions to be computed as of day two, the firm would include the following entries in its large position report:

Cash/Immediate Net Settled Positions $100
Line 1 Total Net Trading Position $100
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $0*
* ($0 - $40 = -$40)  
Memorandum 2 $40

The rationale for this result is identical to that used in the treatment of fails-to-receive. As stated in the preambles of both the proposed and final large position rules (60 FR 65219, December 18, 1995 and 61 FR 48345, September 12, 1996, respectively), a position that remains unsettled after its scheduled settlement date (the term “settlement” has the same meaning as “clearance” in this document) is not included in the net trading position computation. Thus, for the computation as of day one, the $40 sale is included in the net trading position computation by being subtracted from the $100 long position. However, for the computation as of day two, the $40 sale, which is now failing, must be removed from the net trading position (which causes the net trading position to revert to $100) and included in the computation of the net fails position as a fail-to-deliver. This is because the past settlement date sale, unlike the forward settling sale position in day one, does not reduce the size of the net trading position. For purposes of the large position rules, net forward settling positions include next-day settling positions. Additionally, since there are no fails-to-receive in this example, the net fails position computation would be $0 - $40 = - $40. Whenever the net fails position computation is equal to or less than zero, zero is entered as the net fails position. The $40 fail-to-deliver must be reported in Memorandum 2 (final rule amendment issued on December 18, 2002).

3.4.2) What is the treatment of fail financings in the large position report?

Note: For purposes of the following answers,

1) The only activity for the security issue is the transaction described, and par is equal to $100. Also, Line 3 Net Fails Position equals fails-to-receive less fails-to-deliver. If the difference is equal to or less than zero, report 0 (see section 420.2(e) of the large position rules).

2) Treasury staff understands that, in certain circumstances, reporting entities may be unable to determine whether a fail is the result of a cash purchase transaction or a reverse repo transaction. Therefore, if a reporting entity is unable to specifically identify the type of transaction that led to a failed position, and the reporting entity maintains that different assumptions about the source of the fail (e.g., originally a cash trade vs. a reverse repo) led to different reportable position calculations, the reporting entity should always use the most conservative approach -- the calculation that produces the highest reportable position.

3) Financing transactions remaining unsettled after their scheduled settlement date are not to be included in the computation of the gross financing position.

Reverse Repurchase Transactions. Firm A enters into a term reverse repurchase transaction with same-day settlement, which is also the date for which Treasury requires positions to be calculated for a large position report. Firm A would report the following:

Line 1 Total Net Trading Position $0
Reverse Repurchase Agreements Term $100
Line 2 Total Gross Financing Position $100
Line 3 Total Net Fails Position $0

However, if Firm A fails to receive the security at the end of the day of the initiation (opening leg) of the reverse repo, Firm A would report the following:

Line 1 Total Net Trading Position $0
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $100*
* (100 - 0 = 100). For forward reverse repos, this entry would be made for positions to be computed as of the settlement date of the opening leg.

On the settlement date of the termination (closing leg) of the term reverse repo, Firm A fails to deliver the securities that were received at the initiation of the transaction. This is also the date for which Treasury requires positions to be calculated for a large position report. Firm A would report the following:

Line 1 Total Net Trading Position $0
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $0*
* (0 - 100 = -100)
Memorandum 2 $100

Repurchase Transactions. Firm A enters into an open repurchase transaction with same-day settlement, which is also the date for which Treasury requires positions to be computed for a large position report. Firm A would report the following:

Line 1 Total Net Trading Position $0
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $0
Repurchase Agreements  
Overnight and Open $100
Total Memorandum 1 $100

However, if Firm A fails to deliver the security at the end of the day of the initiation of the open repo, Firm A would report the following:

Line 1 Total Net Trading Position $0
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $0*
* (0 - 100 = -100). For forward repos, this calculation would be made for positions to be computed as of the settlement date of the opening leg.
Memorandum 1 $0
Memorandum 2 $100

On the settlement date of the termination of the open repo, Firm A fails to receive the securities that were delivered at the initiation of the transaction. This is also the date for which Treasury requires positions to be computed for a large position report. Firm A would report the following:

Line 1 Total Net Trading Position $0
Line 2 Total Gross Financing Position $0
Line 3 Net Fails Position $100*
* (100 - 0 = 100)  
Memorandum 1 $0
Memorandum 2 $0

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