Fed to employ CUSIP aggregation for agency MBS
The Federal Reserve Bank of New York is changing the way it administers the agency mortgage-backed securities it holds by consolidating some of the securities through CUSIP aggregation, which groups bonds with similar characteristics. The Committee on Uniform Security Identification Procedures, or CUSIP, is a capital markets tool for identifying financial instruments across institutions. The CUSIP is used as a reference tool where the assigned number offers a glimpse into bond characteristics such as coupon and legal end date. The New York Fed's open market trading desk, which controls all the trading activity for the Federal Reserve, will begin using the service offered by Fannie Mae and Freddie Mac next week. The central bank said aggregated CUSIPs are consolidated into larger pass-through securities, which is commonly used by investors but not on the scale the Fed is set to undertake. The change will lower the number of individual CUSIPs held by the Fed in its system open market account and subsequently reduce costs and "operational challenges associated with managing the MBS portfolio." The Fed holds nearly $1 trillion of MBS with more than 44,000 individual agency MBS CUSIPs. This aggregation process is expected to cut that number to less than 10,000, according to the central bank. On a macro scale, CUSIP Global Services is managed on behalf of the American Bankers Association by Standard & Poor’s with a Board of Trustees comprised of representatives from leading financial institutions. The CUSIP network covers more than 9.1 million unique financial instruments and over 70% of all international identifiers used in global securities transactions Write to Jason Philyaw.