New York Fed chooses three firms for counterparty pilot program

Exploring ways to broaden access to open market operations

The Federal Reserve Bank of New York has chosen three firms to participate in a pilot program designed to explore ways to increase access to open market operations.

Brean Capital, based in New York City; Loop Capital Markets, located in Chicago; and Mischler Financial Group, located in Corona del Mar, California, were chosen by the Fed to take part in its mortgage operations counterparty pilot program.

“The New York Fed’s intent in conducting this program for small firms is to explore ways to broaden access to open market operations, and to determine the extent to which firms beyond the primary dealer community can augment the New York Fed’s operational capacity and resiliency in its monetary policy operations,” the Fed said in a statement.

The firms were chosen from a group that cannot act as counterparties in agency mortgage-backed securities operations the Fed conducts for the System Open Market Account portfolio because they do not meet the Fed’s capital minimum requirement for primary dealers.

“In order to maximize the information gained from this pilot, the New York Fed selected a subset of eligible firms that are diverse with respect to characteristics such as size and geographic reach,” the Fed said.

The program applicants’ ability to maintain a consistent transaction presence in the secondary market for agency MBS securities, as both a seller and a buyer, while acting as principal was one of the primary determining factors.

The three firms will participate as counterparties for the Fed’s open market trading desk along with its previously designated primary dealers in the desk’s agency mortgage-backed securities operations.

“We're honored to be named by the New York Federal Reserve to participate in this new program,” said Dean Chamberlain, CEO of Mischler Financial Group. “This is a great tribute to our firm's capabilities and provides an important opportunity for our institutional clients who are active in the MBS marketplace."

The program is expected to run for about one year.

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