SIFMA has developed standardized documentation for a series of transactions in the bond market. This section contains forms of standard agreements, policies and procedures developed by SIFMA specifically for the use of mortgage-backed securities and debt-backed securities. Follow the links below to view the documents: The TBA market assumes that MBS pools are relatively interchangeable. The TBA process increases the overall liquidity of the MBS market by taking thousands of different MBS with different characteristics and exchanging a handful of contracts. TBA buyers and sellers agree on these parameters: issuer, maturity, coupon, price, face value and billing date. Table of Matters (TOC) Chapter 1: Introduction Chapter 2: Definitions of Terms and Conditions Chapter 3: Federal Agency and Subsidized Agencies Chapter 4: Clearance and Settlement Infrastructure Chapter 5: General Description of Mortgage Securities and Other Related Products Chapter 6: Confirmations Chapter 7: Pool Process Notification Chapter 8: Standard Requirement for Delivery of Fannie Mae, Freddie Mac, and Ginnie Mae Securities (Good Guidelines) Chapter 9 : Structured Products Settlement Procedures Chapter 10: Remittance Reporting, Payments, Due Bills and Compensation Chapter 11: Delivery, Receipt and Reclamation Chapter 12: Notification and Settlement Dates Ted Leveroni is Executive Director for Derivas Strategy at Omgeo. In January 2014, when the average volume of daily transactions on the TBA market reached more than $186 billion, the Financial Industry Regulatory Authority (FINRA) set marginala requirements to reduce the risks associated with longer-term TBA transactions. This rule applies only to certain individuals or institutions and is not considered necessary for transactions involving short settlement times. Figure 3: TBA Activity History and Agency MBS Esuance (2002-2011) As we have seen in other markets, a lot can happen in just a few days, making a seemingly solvent institution a failing part. In times of market stress, often associated with companies or in a situation of late payment, it is customary to see significant fluctuations in the yield curve and significant price volatility of fixed-rate instruments, including TBAs. When a TBA counterparty becomes insolvent in a phase of market volatility, the non-failing party may obtain a less favourable price for its replacement TBA and thus suffer a loss. It is the mitigation of this potential loss that TPMG`s new recommendation is expected to address.
The risks associated with TBA investments are similar to those associated with other mortgage assets, including interest rate and advance risks. Given the enormous liquidity in the TBA market, counterparty risk is generally not an issue, although it may become an S-A risk in times of emergency, particularly in the case of dollar rolls for which the counterparty relationship is greater because of the "repo" nature of the transaction. Residential mortgage-backed securities and to-be-announced (TBA) Compliance with the new guidelines will be a challenge, as new entrants and entrants to the TBA will need to implement or update systems and processes to manage new protection requirements for these products. The procedures for the settlement of MBS-TBA transactions are defined by the bond market association. Given the market dynamics described above, we believe that the majority of TBA securities identified among insurers` assets at the end of the year and in intra-year transactions are the result of these short-term dollar-wheel-income transactions (as evidenced by their short maturities), as opposed to a possibility of long-term investment in future MBS pools. In addition, some insurers may use TBA securities to hedge interest rate risk exposures resulting from other interest-sensitive securities they may hold.