Freddie Mac · OTC:FMCC
Freddie Mac — Technical Presentation (December 2018)
33 slides from Freddie Mac's technical presentation, Dec 6, 2018
Slide 1: Single Security Tabletop Live Exercise
Single Security Tabletop Live Exercise December 6th, 2018
Slide 2: Time Duration Topic
Time Duration Topic 10:00 AM – 10:15 AM 15 mins. Welcome & Agenda Scenario 1&2: UMBS Trade/ Dollar Roll & Index 10:15 AM – 11:30 AM 75 mins. Updates 11:30 AM – 12:00 PM 30 mins. Scenario 3: Dealer-Facilitated Gold PC Exchange 12:00 PM – 12:45 PM 45 mins. Lunch & Break 12:45 PM – 1:45 PM 60 mins. Sce
Slide 3: Today's Goals
Today’s Goals • Review the key market scenarios that will be part of the transition from two TBA markets to one combined market for Fannie Mae and Freddie Mac • Share service providers’ planned updates and system/screen changes • Provide a level of confidence that the market will be ready for the UM
Slide 4: Scenarios 1&2: UMBS Trade/Dollar Roll, Index Updates
Scenarios 1&2: UMBS Trade/Dollar Roll, Index Updates 4
Slide 5: Trades over Transition Period to UMBS
Trades over Transition Period to UMBS To Close Trade Type Transaction Date To Roll Position What’s changing? Considerations Position Before Implementation Pair off position or No change (March 2019 trade, deliver Fannie Mae May 2019 TBA (Regular Roll) FNCL Trade - Fannie April 2019 settle) MBS Mae M
Slide 6: Fannie Dollar Rolls
Single Security Initiative Fannie Dollar Rolls Dealer Guidelines & f Confirm good delivery } Regulatory April April — May May - June Key risks/points of failure Fannie Mae FreddieMac
Slide 7: Freddie Dollar Rolls
Single Security Initiative Freddie Dollar Rolls _ Guidelines & Confirm good delivery Regulatory Key risks/points of failure Fannie Mae FreddieMac
Slide 8: Freddie Dollar Rolls
Freddie Dollar Rolls • Investors have three options for existing Golds if they want to roll into the next month during this transition: 1. For a limited time Gold rolls may be offered 2. Close the position by either pairing off or taking delivery of the 45-day Gold PCs. 3. Roll the position by selli
Slide 9: Questions for Discussion
Questions for Discussion • What will vendors display on their screens? • How will vendors reflect simultaneous trading in the UMBS forward market and the current two TBA markets (Fannie Mae and Freddie Mac)? • Will prices be based on Fannie MBS prices? • Then, once we reach the go-live in June, how
Slide 10: Scenario 3: Dealer-Facilitated Gold PC Exchange
Scenario 3: Dealer-Facilitated Gold PC Exchange 10
Slide 11: For this scenario we will discuss
For this scenario we will discuss • How will the dealer facilitated exchange work? • What are the proper delivery instructions and concerns? • How will Freddie Mac handle fails? • What are the key issues to manage this path? • Service Providers Discussion Participants: Bloomberg, Broadridge, Blackro
Slide 12: Tabletop Exercise Dealer Exchange Example
Tabletop Exercise Dealer Exchange Example Record exchange Initiate Book exchange Perform buy/sell trades in Receive 55d Exchange exchange and receive Deliver 45d Accounting and trade booking mirror complete request confirmation Tax Reporting system Investor representative describes: Dealer represent
Slide 13: Dealer-Facilitated Path: Initial Setup
Dealer-Facilitated Path: Initial Setup ▪ Investor – What is the exchange strategy. Timing, number of securities, dealers, bookkeeping implications, etc? – Are there any concerns with initial trade booking? ▪ Dealers – How would the transaction be booked? DVP or FOP – How would you handle capacity? –
Slide 14: Dealer Direct Demo/ Float Comp tool Demo
Dealer Direct Demo/ Float Comp tool Demo ▪ Show booking of exchange transaction 14
Slide 15: Dealer Facilitated Path: Transaction Booking & Settlement
Dealer Facilitated Path: Transaction Booking & Settlement ▪ Contact Dealer with request to exchange ▪ Through this path dealers can book transactions for current month or following month Settlement Blackout Dates • First 5 Business days of the month • Reg A & Reg B Settlement Dates • REMIC Collatera
Slide 16: Questions for Discussion
Questions for Discussion • What do you expect from your investor customers when executing an exchange with you? (Dealers) • What do you expect from your investor customers exchanging through the dealer path? (Custodians) • Settlement fail scenario. What is the process? • Partial fails • Incorrect in
Slide 17: Set up your systems: Security Transfer Instruction Preparation
Set up your systems and messaging to correctly handle exchanges: 1 Security Transfer Instruction Preparation If you are an Investor exchanging via the Direct-to-Freddie Mac path, or a Dealer facilitating exchange transactions, please use the following information to set up your security transfer ins
Slide 18: Set up your systems: Custodians' SWIFT Recommendation
Set up your systems and messaging to correctly handle exchanges: 2 Custodians’ SWIFT Recommendation (for MT54x messaging) 20 C 22 F ▪ SIFMA Custodian Working Group developed this recommendation ▪ Leverages standard input in existing SWIFT message tags to identify exchange transactions ▪ 20C is parti
Slide 19: Freddie Mac Exchange: Market Price vs Book Value (2/2)
Freddie Mac Exchange – Exchange at Market Price vs Accounting at Book Value (2/2) e.g. Custody account ABC exchanges 120 Mio of MBS ISIN US12345678 – Settlement Instruction for Dealer Path – DVP/RVP* ▪ Investor sends 1 settlement instruction to deliver versus payment 120 Mio MBS with the Universal E
Slide 20: Freddie Mac Exchange: Market Price vs Book Value (1/2)
Freddie Mac Exchange – Exchange at Market Price vs Accounting at Book Value (1/2) ▪ To ensure correct carry forward and adjustment in accounting for each lots exchanged at Market Price while accounted for at Book Value, the Fund Administrator will need extra logic ▪ Freddie Mac will only provide one
Slide 21: Scenario 4: Direct-to-Freddie Gold PC Exchange
Scenario 4: Direct-to-Freddie Gold PC Exchange 21
Slide 22: Questions for discussion
Questions for discussion • How will the Direct-to-Freddie Mac Exchange path work? • What does the customer set-up and KYC process entail? • What are the different ways I might book exchange transactions? • How do I properly transmit instructions to my custodians? • How will the exchange transactions
Slide 23: Direct-to-Freddie via Tradeweb Path: Features
Direct-to-Freddie via Tradeweb Path: Features ▪ Counterparty is Freddie Mac ▪ Delivery is Free of Payment (FOP) Delivery ▪ Custodians directly interface with Freddie Mac as the issuer ▪ Whole or partial CUSIPs may be exchanged, at the sub-account level ▪ Capacity is around 50,000 exchanges / day acr
Slide 24: Direct-to-Freddie via Tradeweb Path: Initial Setup
Direct-to-Freddie via Tradeweb Path: Initial Setup 1 Onboarding and Know-Your-Customer Each investor—whether a current Tradeweb customer or not—will undergo an onboarding and Know-Your-Customer (KYC) setup process to be performed by Tradeweb. How to initiate: Send an email to UMBS@tradeweb.com and r
Slide 25: Tabletop Exercise Direct to Freddie Exchange Example
Tabletop Exercise Direct to Freddie Exchange Example Initiate Book exchange Record exchange Perform Receive 55d Exchange exchange and receive trades in trade Deliver 45d Accounting and mirror complete request confirmation booking system Tax Reporting Tradeweb representative describes: Investor repre
Slide 26: Tradeweb Booking: Options for entering exchange transaction
Tradeweb Booking: Options for entering exchange transaction in Tradeweb ▪ Tradeweb will leverage its List Trade functionality to facilitate the exchange. However, the way you enter the exchange transaction into Tradeweb will depend on your own internal trade booking and downstream processing Unsolic
Slide 27: Direct-to-Freddie via Tradeweb Path: Transaction Booking & Settlement
Direct-to-Freddie via Tradeweb Path: Transaction Booking & Settlement ▪ Exchanges can be entered directly through Tradeweb or via Investor’s OMS ▪ Exchanges can only be booked for current month Booking Blackout Dates vs. Settlement Blackout Dates • First 4 business days of the month • First 5 busine
Slide 28: Scenario 5: Commingled Issuance
Scenario 5: Commingled Issuance 28
Slide 29: Resecuritization: Commingled Collateral
Resecuritization: Commingled Collateral • Second- or third-level securitizations of UMBS issued by either Enterprise SupersSM – Eligible Collateral REMICs1,2 – Eligible Collateral (similar to Megas & Giants) • Can be backed by UMBS and/or other Supers • Can be backed by new or exchanged UMBS and/or
Slide 30: Category Current UMBS Future
Category Current UMBS Future Operational Process • Giant collateral is delivered to one sub-account at • Supers Collateral will be delivered to two subaccounts Delivery Method1 the Fed at the Fed – this is a requirement for Fed netting and → Account 2BD2 clearing Freddie Mac • Receive corresponding
Slide 31: Questions for Discussion
Questions for Discussion • What detail will the vendors have to enable identification of the issuer as well as the underlying collateral? • Is it clear who the Guarantor is? • Are there any outstanding operational, policy or system-related concerns about comingled issuance? • Servicer Provider Discu
Slide 32: Other Transition Scenarios & Questions?
Other Transition Scenarios & Questions? 32
Slide 33: Wrap-up & Closing
Wrap-up & Closing • Today’s session will be posted to both Fannie & Freddie’s Websites • Expect a Second Single Security Conference on February 12th 2019 33