The New York Federal Reserve published new rules for counterparties seeking to use its money market balancer, raising uncertainty about the intentions of the Circle stablecoin issuer to use Federal Reserve systems.
on april 25 statementThe New York Fed announced adjustments to its guidelines for determining which parties are eligible to participate in its Reverse Repurchase Agreements (RRPs).
The updated guidelines could hamper Circle's chances of gaining access to the Fed's reverse repurchase program, a process in which the Fed sells securities to eligible counterparties with an agreement to repurchase them on the expiration date.
According to the New York Fed, accessing such a system "should be a natural extension of an existing business model, and the counterparty should not be organized for the purpose of accessing RPP trades."
"SEC-registered 2a-7 funds that, in the sole judgment of the New York Federal Reserve, are organized for a single beneficial owner, or exhibit sufficient similarity to a fund so organized, will generally be deemed ineligible for trade Reverse Repurchase".
The Circle Reserve Fund, his money market fund managed by investment management firm BlackRock, is one such background 2a-7 that is only available to Circle and could be "deemed ineligible" according to the Fed's statement.
The regulations governing government money market funds 2a-7 are intended to ensure that these funds can meet potential redemptions by investors in a timely manner.
Funds under this category must hold at least 10% of its total assets in daily liquid assets and at least 30% of its total assets in weekly liquid assets.
Approval of the Fed program would allow Circle to earn interest on excess funds by investing in low-risk Treasuries, which would allow the issuer of the stablecoin to earn interest and help maintain the stability of its stablecoin, USD Coin. (USDC).
Raagulan Pathy, Circle's vice president of Asia-Pacific, told Cointelegraph in March that Circle would "ultimately like to keep" all of its cash with the fed as well as "using the Fed payment rails, because that takes us away from our reliance on TradFi partners."
It was noted at the time that despite Circle's expanded ties to BNY Mellon and its new banking partnership with Cross River, Circle owned 80% of its reserves and treasury.
Related: New York Fed launches 12-week CBDC pilot program with major banks
Circle has recently turned its attention to having “more banking partnerships globally,” since the decoupling of the USDC following the Silicon Valley Bank (SVB) collapse on March 10, according to Pathy.
It wasn't until November 2022 that Circle announced that it had begun investing some of its funds in the Circle Reserve Fund, as a measure to mitigate risk and maintain the redeemability of its coins for holders.
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