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Discussion Paper
Introduction to a Series on Market Liquidity
Adrian, Tobias; Schaumburg, Ernst; Fleming, Michael J. (2015-08-17)
Market participants and policymakers have recently raised concerns about market liquidity?the ability to buy and sell securities quickly, at any time, at minimal cost. Market liquidity supports the efficient allocation of capital through financial markets, which is a catalyst for sustainable economic growth. Changes in market liquidity, whether due to regulation, changes in market structure, or otherwise, are therefore of great interest to policymakers and market participants alike.
Liberty Street Economics , Paper 20150817

Discussion Paper
Customer and Employee Losses in Lehman’s Bankruptcy
Sarkar, Asani; Denison, Erin; Fleming, Michael J. (2019-01-16)
In our second post on the Lehman bankruptcy, we discussed the cost to Lehman’s creditors from having their funds tied up in bankruptcy proceedings. In this post, we focus on losses to Lehman’s customers and employees from the destruction of firm-specific assets that could not be deployed as productively with other firms. Our conclusions are based in part on what happened after bankruptcy—whether, for example, customer accounts moved to other firms or employees found jobs elsewhere. While these costs are difficult to pin down, the analysis suggests that the most notable losses were borne ...
Liberty Street Economics , Paper 20190116

Discussion Paper
What Explains the June Spike in Treasury Settlement Fails?
McMorrow, Michael; Keane, Frank M.; Fleming, Michael J.; Martin, Antoine (2014-09-19)
In June of this year?as we noted in the preceding post?settlement fails in U.S. Treasury securities spiked to their highest level since the implementation of the fails charge in May 2009. Our first post reviewed what fails are, why they arise, and how they can be measured. In this post, we dig into the fails data to identify possible explanations for the high level of fails in June. We observe that sequential fails of several benchmark securities accounted for the lion?s share of fails in June, but that fails in seasoned securities?which have been trending upward for some time?were also ...
Liberty Street Economics , Paper 20140919a

Discussion Paper
The Impact of Trade Reporting on the Interest Rate Derivatives Market
Sarkar, Asani; Li, Ada; Fleming, Michael J.; Jackson, John; Zobel, Patricia (2012-04-30)
In recent years, regulators in the United States and abroad have begun to strengthen regulations governing over-the-counter (OTC) derivatives trading, driven by concerns over the decentralized and opaque nature of current trading practices. For example, the Dodd-Frank Act will require U.S.-based market participants to publicly report details of their interest rate derivatives (IRD) trades shortly after those transactions have been executed. Based on an analysis of new and detailed data on the trading activity of major dealers, this post discusses the possible costs and benefits of reporting ...
Liberty Street Economics , Paper 20120430

Discussion Paper
Market Liquidity after the Financial Crisis
Adrian, Tobias; Shachar, Or; Fleming, Michael J. (2017-06-28)
The possible adverse effects of regulation on market liquidity in the post-crisis period continue to garner significant attention. In a recent paper, we update and unify much of our earlier work on the subject, following up on three series of earlier Liberty Street Economics posts in August 2015, October 2015, and February 2016. We find that dealer balance sheets have continued to stagnate and that various measures point to less abundant funding liquidity. Nonetheless, we do not find clear evidence of a widespread deterioration in market liquidity.
Liberty Street Economics , Paper 20170628

Report
The microstructure of the TIPS market
Krishnan, Neel; Fleming, Michael J. (2009)
We characterize the microstructure of the market for Treasury inflation-protected securities (TIPS) using novel tick data from the interdealer market. We find a marked difference in trading activity between on-the-run and off-the-run securities, as in the nominal Treasury securities market. We find little difference in bid-ask spreads or quoted depth between on-the-run and off-the-run securities, in contrast to the nominal market, but we do find a sharp difference in the incidence of posted quotes. Intraday activity differs strikingly from the nominal market, with activity peaking in the ...
Staff Reports , Paper 414

Discussion Paper
Failure Is No Longer a (Free) Option for Agency Debt and Mortgage-Backed Securities
Fleming, Michael J. (2012-03-19)
A recommended charge on settlement fails for agency debt and agency mortgage-backed securities (MBS) took effect on February 1, 2012. This follows the successful introduction of a charge on settlement fails for U.S. Treasury securities in 2009. With a fails charge, a seller of securities that doesn’t deliver on time must pay a charge to the buyer. The practice is meant to ensure that sellers have adequate incentive to deliver securities without undue delay and thereby reduce the level of settlement fails. In this post, I discuss how and why the fails charge was implemented.
Liberty Street Economics , Paper 20120319

Report
The term structure of announcement effects
Remolona, Eli M.; Fleming, Michael J. (1999)
We analyze high-frequency responses of U.S. Treasury yields across the maturity spectrum to macroeconomic announcements. We find that surprises in the announcements evoke the sharpest reactions from the intermediate maturities, thus forming striking hump-shaped curves of announcement effects. We then fit an affine-yield model to the yield changes using the announcement surprises as GMM instruments. The model estimates imply that the announcements elicit larger shocks to an expected future target interest rate than to the current short-term interest rate and that different types of ...
Staff Reports , Paper 76

Journal Article
The Federal Reserve's foreign exchange swap lines
Klagge, Nicholas; Fleming, Michael J. (2010-04)
The financial crisis that began in August 2007 disrupted U.S. dollar funding markets not only in the United States but also overseas. To address funding pressures internationally, the Federal Reserve introduced a system of reciprocal currency arrangements, or "swap lines," with other central banks. The swap line program, which ended early this year, enhanced the ability of these central banks to provide U.S. dollar funding to financial institutions in their jurisdictions.
Current Issues in Economics and Finance , Volume 16 , Issue Apr

Journal Article
Measuring treasury market liquidity
Fleming, Michael J. (2003-09)
This paper was presented at the conference "Economic Statistics: New Needs for the Twenty-First Century," cosponsored by the Federal Reserve Bank of New York, the Conference on Research in Income and Wealth, and the National Association for Business Economics, July 11, 2002. Securities liquidity is important to those who transact in markets, those who monitor market conditions, and those who analyze market developments. This article estimates and evaluates a comprehensive set of liquidity measures for the U.S. Treasury securities market. The author finds that the commonly used bid-ask ...
Economic Policy Review , Issue Sep , Pages 83-108

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