EDIT: 002 is not coming into effect tommorow as a fellow redditor has pointed out to me in the comments. It is going to get approved or denied, then implemented either same day or up to 10 days after approval(as far as I am aware)EDIT 2: Fixed some minor formatting and phrasing issues to make the post a little cleaner to look at. (editing on mobile removes the images for some reason)
Hello fellow apes! So the reason I’m writing this right now, as you might imagine, is because reverse repos have gone haywire. I mean, take a look at this:
ON RRP last Wednesday
ON RRP the day AFTER
So, what gives? Why did all of these counterparties decide to throw money at the FED like they were at a strip club getting the greatest performance of their goddamn lives? That’s a 200 BILLION increase in a day. Well, if you look under “Rate (%)” you’ll see the award amount has changed to 0.05. That’s right folks, banks and other counterparties are now getting paid for borrowing treasury collateral as the reverse repo rate isn’t 0 anymore. This basically does 2 things:
- Incentivizes more counterparties to throw money into reverse repos
- Incentivizes said counterparties to be more loosey goosey with how much treasury collateral they are borrowing
Hence, we have the sudden jump in both counterparties as well as the total reverse repo $ amount. For such a large jump in a day, however, shows that there is a lot of demand for treasury collateral. This proves to me how bad this collateral crisis truly is, and how desperate banks and other counterparties are to get a hold of meaningful collateral. What’s weird to me, is the timing of all this though. I mean, don’t you find it weird that around the same time that 005 gets put into effect, counterparties are incentivized to borrow more treasury collateral? To understand this connection, we need to understand what 005 does.Quick Rundown on 005:
For some of the newer apes around here, or if you are still a little confused about the recent 005 rule enacted by the DTCC, what DTC-2021-005 does (other than soft doxxing people, shame on you DTCC) is essentially making it so if you are borrowing/lending a share, the share being lent is still in the hands of the lender (used to be it goes to the borrower), but is marked as “borrowed”.
(Apologies for the bad image) Before 005, when a share was lent, ownership of the share went from the lender to the borrower, with the lender often in the dark as to what was happening with their shares; this gave openings for rehypothecation and other shenanigans the borrower could do.
With 005 now in effect, when a share is loaned, the ownership is still in the hands of the lender, the borrower gets the share, and the share is marked as “borrowed”.
Through this, you basically can’t borrow the same share more than once as well as rehypothecate the shares (meaning you can’t re-use the collateral you put up to borrow the share until the share is returned). There’s a well written and in depth post that explains it better than I could here that you should also look into if you want a better understanding of 005.The Connection:
So now that we have a gist of 005, we can begin to connect some dots:
- 005, a rule that is designed to stop a lot of rehypothecation as well as reborrowing of shares more than once, comes into effect.
- The FED ups the reverse repo rate, causing a flood of counterparties looking for treasury collateral to dump a butt load of money into ON RRP, raising the total reverse repo $ amount by over 200 billion.
Correlation does not equal causation of course, and this is a loose connection, so we need further proof of anything substantial. Well, take a look at this:
Several Chase customers have started reporting that they have -50 BILLION$ in debt. Ridiculous.
At first I was skeptical that this was a true value and that it could have just been a glitch, but here is what u/jaybaumyo had to say regarding this in the comments:
So, 50 billion is a specific number to have as a max number in coding, one so specific that it is highly unlikely to be a glitch in this circumstance and likely the result of something else, such as Chase’s debt leaking into their customers bank accounts.
With Chase customers suddenly reporting -50 billion in debt in their BANK accounts, and with BANKS being some of the primary counterparties of FED ON RRP agreements, my theory is that banks have started getting desperate to hide their debt in any way possible so that they can still stay afloat, even if it means putting their customers in danger. 005 being in place REALLY put banks in fear for a couple of reasons:
- How overleveraged they are
- How overleveraged hedge funds like Citadel are, that we have been theorizing for a while now have been rehypothecating borrowed shares to help reset FTD cycles.
If a large hedge fund like Citadel goes down(who massively shorted the treasury bonds market BTW), the banks know it won’t be long before they become next, so this incentive to use reverse repos helped the demand for treasury collateral become more visible to the public than it already was and helped crystalize what we have been saying for months now.
But why is all this coming about now, to the extent that it has other than just the incentive? For them to be this desperate about it, they have to be afraid of something that isn’t just DTC-2021-005 (which is already bad enough) . Well, what special certain rule *cough* SR-NSCC-2021-002 is possibly coming into effect TOMMOROW that automates margin calls, and is asking for supplemental liquidity deposits DAILY to NSCC’s clearing fund from its members for their overleveraged positions?
If 002 comes into play, it won’t take long before the house of cards comes falling down. They’re so desperate in fact, their debt has not only started to leak through their customer’s bank accounts, but in other avenues as well.The C-Market Connection:
Banks, hedge funds, hell the whole house of cards are truly on the brink of destruction right now in my opinion. To truly send this point home, I would like for you to have a look at this as well:
Quick Edit: changed the source that reported on this story to a more reputable source
You’re seeing that right: a Georgia man woke up to 1 TRILLION in his account, after investing only 20 dollars in a random C-coin called Rocket Bunny.
Now obviously, he’s probably not gonna get to take out all 1 trillion dollars, but something is definitely suspicious here regarding the timing of all of this. I mean, do you know how much money 1 fucking trillion dollars is? Who the hell is capable of inflating a random C.C. to the extent that a random guy that put 20 dollars into it got 1 TRILLION out of it? There’s only two entities that I believe are capable of such feat, and they are ALSO the ones in massively overleveraged positions:
- Banks
- Hedge funds
But first: Why use the c-market as a way to hide debt, and how?
- The c-market is massively unregulated at the moment which is the perfect place to take advantage of to hide a bunch of money.
- By inflating random C.Cs, when they take profits it could be used to hide the true value of the debt itself.
Let me explain that second point. Right now, as far as we know the overleveraged positions of these entities are unrealized losses. They don’t become real losses until they exit their positions. So, by inflating random C.C.s , they’re using the profits they gain to report larger assets overall on the books vs liabilities (not reporting on what they did in the C-market specifically of course, they really aren’t required to report that). Since their losses are unrealized, we have the illusion on the accounting front that they are thriving and don’t have much debt when they are actually on the verge of collapse and are probably using these profits to help cover their losses when they become realized.
For the c-market, the manipulation could honestly be a combination of both banks, hedge funds and other entities we may not even know of that are also really overleveraged in the market right now. I just think it makes more sense with banks and the hedgies because:
In terms of banks:
- The FED is basically hoarding treasury collateral at this point, so banks and other counterparties can only use so much treasury collateral through ON RRP to report less losses on the books.
In terms of hedge funds:
- Hedge funds aren’t qualified counterparties (to my knowledge) for reverse repos, so inflating random C.Cs is one of the only ways (besides resetting FTD cycles infinitely through rehypothecation/options fuckery, which we know with DTC-2021-005 in effect is next to impossible to keep doing forever now) that they can continue to stay afloat and give the illusion on the books that they have outstanding financial performance.
Conclusion/TLDR:
I think DTC-005 coming into effect was the trigger for the house of cards to finally come down, and with NSCC-002 coming into effect after approval, we could see some potentially catastrophic effects in the market in the near future. We’ve already been seeing some debt being leaked into customers bank accounts, as well as in the c-market. Banks, hedge funds, and any other massive financial entity in an extremely overleveraged position are probably shitting themselves right now because they KNOW they don’t have the money to support supplemental liquidity deposits DAILY as well as the possibility of an automatic margin call, when they are most likely BILLIONS in debt. If I were Kenny boy, I would grab my mayo and start running for the hills.Post DD Message:
Again guys, I just want to thank all of you for reading through my DD! 🙂 The messages and support you guys have given me on my last post as well made me genuinely very happy to see, and it made me more motivated to continue to try to make some DD! Hopefully you guys have enjoyed reading through it, and as for me I might hang out in the comments for a bit before going to sleep soon because its about midnight right now where I live. As always, I will try to continue to improve my DD in the future and this DD, as with any, isn’t perfect; I am glad this community helps to chizzle my DD into something closer and closer to it though with every post.