In response to the Covid-19 pandemic, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System (Fed), in March announced a series of emergency measures the Fed was taking to support the financial markets, including the purchase of commercial paper and other asset types.
As Product Manager for money market instruments (MMI) at DTCC, I oversee, along with Juan Arias, DTCC Senior Associate in our Settlement Product Management Group, the daily delivery of 14 data files to the Fed Board of Governors and the New York Fed. In addition, my team supports the Fed Collateral Loan Pledge process that allows Depository Trust Company (DTC) clients to pledge securities to the Fed that have been agreed upon between the two parties. This pledge process, led by the Boston Fed, would be a key element of the Fed’s emergency market-support programs.
Given our roles, Juan and I knew various arms of the Fed would be reaching out to us to provide information about the relevant asset classes and how those securities settle at DTC, to help them design their new programs. Here, I recount a period of intense collaboration with the Fed as these programs were conceived and launched.
Thursday, March 19: We receive the first call, from a senior person at the Boston Fed. The Fed’s Money Market Liquidity Facility (MMLF) was being rolled out to support the flow of credit to households and businesses. Under the MMLF, the Boston Fed would make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds. The MMLF would assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy.
In preparation for opening MMLF, the Boston representative needed a crash course on how our clients process these types of transactions through our platform. Over many hours Juan and I explained the details of the commercial paper process at DTCC as well as the DTC collateral loan process specific to the Fed. We did the same with our paying agent, dealer and custodian clients who would be involved in these transactions.
Friday, March 20: The Boston Fed calls again, asking that DTC change its Fed Collateral Loan service to allow DTC clients to pledge securities to the specific account set up for the MMLF. The kicker: the revision needed to be made by the opening of business the following Monday, when the Fed would start to accept pledges of securities.
We immediately contacted Carissa Kocan, Director and Sunita Aurumilli, Executive Director from our IT staff who support Settlement Services and they quickly assembled a cross-functional team, which included End to End Testing, which is managed by Venkatarami Reddy Gollamudi, Director. The team worked through the weekend to implement and test the necessary changes. It was not a small undertaking! By Monday, DTC was receiving pledges from our clients that were successfully processed to the special-purpose MMLF account at the Boston Fed.
Simultaneously Juan and I were speaking with clients to instruct them on the new protocols for processing the maturities of the securities they release from the Fed and inputting those pledged securities to the MMLF.
Senior management at the Boston Fed was extremely appreciative of DTC’s help in activating MMLF.
Monday, March 23: The New York Fed called me with questions about the 14 MMI files DTC sends to the Fed – specifically, how to interpret the data and when and how it is delivered. “Could DTC provide 12 months of historical data?”, they asked.
In response to the market turmoil around Covid-19 the Fed was creating the Commercial Paper Liquidity Facility (CPLF), which would allow the NY Fed to purchase commercial paper from issuers through PIMCO, an investment manager chosen by the Fed to handle this business. This program stipulated that the Fed could not purchase more than the amount of the issuer’s outstanding obligation from March 16, 2019 to March 19, 2020, a provision that required knowing those numbers -- hence the need for DTC’s data.
Data from three of the 14 files -- the Daily Commercial Paper Deliver Order Data, MMI Daily Issuances Data, and the Commercial Paper Outstanding Shares -- would give the NY Fed and PIMCO the information necessary to make the decisions regarding an issuer’s outstanding and daily activity. But the data is confidential and would require authorization to share it.
Melissa Fisher, Executive Director from DTCC’s General Counsel’s Office along with Kenneth Riitho, Executive Director from Regulatory Relations and John Abel, Executive Director from Settlement Product Management were enlisted to draft a usage agreement permitting the NY Fed to share the data with PIMCO and defining what the Fed and PIMCO could do with the data elements. Once the signed agreement was in place, Juan and I were able to work through the details and deliver the files to Fed in a timely manner.
Separately, our GC’s Office helped facilitate a request sent by the Federal Reserve Bank Board of Governors in Washington just as the Fed was starting to activate its pandemic response program: that is, to be able to share the data the Board received from DTC each day with their counterparts at the NY Fed to help coordinate their actions around the new facilities.
Once again, Fed officials were very pleased with our rapid responsiveness.
Sunday, March 29: The NY Fed calls me to ask about our municipal bond data and the process through which muni bond transactions are settled at DTC. These questions related to a third facility the Fed was establishing, the Municipal Liquidity Facility (MLF). As with the other two, this facility would be designed to increase liquidity – in this case, in the market for debt obligations issued by municipal agencies, cities and states. The Fed selected PFM Financial Advisors LLC (PFM) as its administrative agent for the MLF.
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My colleagues and I are gratified that DTCC could play a role in helping the Federal Reserve stabilize the markets during a time of extreme market volatility and uncertainty. We’re committed to continue to use our knowledge and resources to help the markets, and the country, weather times of turmoil when they occur