NEW YORK (MNI) - The following is an excerpt from FAQs published by the Federal Reserve Bank of New York, informing that it will begin to use internal staff on select days to execute the program's agency MBS purchases. This is expected to begin in late November 2009. At the onset of the program in January, the Fed had hired 4 asset managers but as the Fed beefed up its staff, it pared that back until 2:

Why is it necessary for the Federal Reserve to transact in the agency MBS market via external investment managers?

The operational and financial characteristics of MBS purchases are significantly more complicated than those associated with the assets that have traditionally been purchased by the Federal Reserve. The Federal Reserve has chosen external investment managers as a means of implementing the MBS program quickly and efficiently while at the same time minimizing operational and financial risks. Because of the size and complexity of the agency MBS program, a competitive request for proposal (RFP) process was employed to select four investment managers and a custodian. The selection criteria were based on the institutions' operational capacity, size, overall experience in the MBS market and a competitive fee structure.

As of August 2009, the Federal Reserve streamlined the set of external investment managers, reducing the number of investment managers from four to two. The New York Fed retained Wellington Management Company, LLP for trading, settlement and as a secondary provider of risk and analytics support; and BlackRock Inc. as the primary provider of risk and analytics support. The program custodian is J.P. Morgan.

The New York Fed anticipated that it would make adjustments to its use of external investment managers as it gained more experience with the program. The agency MBS program has matured since it began in January, and the New York Fed has had time to further develop its internal analytical and operational expertise in this area. The change in the number of external investment managers was not performance related. The New York Fed is committed to implementing its programs in the most efficient and cost effective manner possible.

Consistent with the continued evolution of the program's operation, the New York Fed will begin in late November to use internal staff on select days to execute the program's agency MBS purchases. From an operational perspective, the New York Fed's trading approach will replicate the one currently employed by the program's trading investment manager, Wellington, although the New York Fed will be trading in its own name. From a settlement perspective, the New York Fed will continue to leverage the middle office settlement support of Wellington for any trades executed by New York Fed staff. While the New York Fed plans to continue to employ the services of outside investment managers, the New York Fed anticipates that, through the balance of the program, the trading days on which its own staff conducts the program's purchasing activity will gradually increase relative to those trading days on which Wellington executes the program's purchasing activity.

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