FAQ: Agency Commercial Mortgage-Backed Securities

Effective June 10, 2020

The following frequently asked questions (FAQs) provide further information about the Federal Reserve’s operations in agency commercial mortgage-backed securities (agency CMBS).

General

How does the Desk intend to implement the FOMC’s plan to purchase agency CMBS?
Effective June 11, 2020, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to increase the System Open Market Account (SOMA) holdings of agency CMBS at least at the current pace to sustain the smooth functioning of the agency CMBS market, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Desk will reinvest all principal payments from the Federal Reserve’s holdings of agency CMBS in agency CMBS. For the most recent Desk Statement regarding agency CMBS purchases, see here.

How will the Desk communicate its agency CMBS purchase amounts and schedule?
The Desk will publish its tentative operation schedule—including upcoming operation dates, the time offers are due to the investment manager, security type and maximum purchase amount—in advance, typically the Friday before the coming week’s operation(s). The operation schedule and parameters are subject to change if market conditions warrant or should the FOMC alter its guidance to the Desk.

How much will the Desk purchase in agency CMBS and how often will purchases take place?
At its June meeting, the FOMC directed the Desk to increase the SOMA holdings of agency CMBS at least at the current pace. Consistent with the FOMC directive, the Desk plans to increase SOMA holdings of agency CMBS at this pace by conducting weekly operations of approximately $250 to $500 million. Actual purchase amounts may be less than these operation sizes and accepted offers in operations will continue to depend on the reasonableness of prices. In addition to purchases that increase SOMA holdings of agency CMBS, the Desk will reinvest all principal payments from the Federal Reserve’s holdings of agency CMBS in agency CMBS. The Desk is prepared to increase the size and adjust the composition of its purchase operations as needed to sustain the smooth functioning of the agency CMBS market.

What types of agency CMBS will the Desk purchase?
The Desk will purchase in the open market agency CMBS secured primarily by multifamily home mortgages that are guaranteed fully as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae and that the Desk has determined are suitable for purchase.

How will agency CMBS purchases be conducted?
On March 24, 2020, the New York Fed retained BlackRock Financial Markets Advisory as a third-party vendor to operationalize these purchases and transact with the primary dealers on behalf of the SOMA. BlackRock was selected on a short-term basis to serve as an investment manager after considering their expertise in trading and analyzing agency CMBS in the secondary market, and robust operational and technological capabilities.

The details for each operation will be disclosed at least one day prior to the operation. The Desk, through its investment manager, will solicit offers from primary dealers to purchase agency CMBS. Operations will be conducted using multiple-price, competitive operations with primary dealers. A "multiple-price" operation is one in which the same security can be awarded at different prices, with awards given to participants at a price corresponding with an individual offer submitted to the operation. The minimum lot size per CUSIP will be indicated in each operation announcement. Offers will be evaluated for reasonable pricing and only the most competitive offers will be accepted. The purchase amount of agency CMBS will be based on the current face value of accepted securities. The term sheet for agency CMBS purchases can be found here.

Agency CMBS Reporting

How will the Desk communicate the operation results?
Results from agency CMBS operations will be posted on the New York Fed’s website following each operation. The information posted will include the total amount of offers received per operation, the total amount of offers accepted per operation, the security type, and the operation date. In addition, participating dealers will receive the operation results, including their accepted offers, through the investment manager following the close of the operation.

How will SOMA holdings of agency CMBS be reported?
Currently, settled agency CMBS holdings, at the CUSIP level, are reported on a weekly basis on the System Open Market Account Holdings of Domestic Securities webpage.

Total agency CMBS holdings will be reported after settlement occurs as part of the MBS line in table 1 on the H.4.1. statistical release titled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks."

Will the Desk release operation pricing results?
Yes. In order to ensure the transparency of its agency CMBS transactions, the Desk will continue to publish historical operation results at mid-month for the prior monthly period. In addition to the pricing information released each month, Section 1103 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires that detailed operational results, including counterparty names, be released two years after each quarterly transaction period.

Miscellaneous

Who is eligible to transact in agency CMBS with the Federal Reserve?
Primary dealers are eligible to submit offers on specific agency CMBS securities for sale to the Desk through the investment manager.

FAQs: April 29, 2020 »