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Term Investment Option

Background

In April 2002, the Treasury, through the Federal Reserve System, piloted a new investment program to test the viability of placing excess cash balances with Treasury Tax and Loan (TT&L) depositaries. Treasury announced in October 2003 that the Term Investment Option (TIO) program would become a permanent cash management alternative to invest Treasury's excess cash balances. The investment is for a defined term and at a rate determined through a competitive auction process. The program was designed to increase the rate of return earned on Treasury investments, add investment capacity to the TT&L Program and to provide TT&L participants certainty in the terms of these investments.

General Overview

Below is a general overview of the TIO program. Specific terms and conditions of participation in the TIO program are set forth in the TIO Instructions and TIO Participant Agreement.

Frequency: Treasury has invested excess balances every month since the TIO program became permanent. Term Investments are typically placed throughout the month.
Length of Term: Although Treasury has the authority to offer investments up to 90 days, offerings have ranged between 1 day and 32 days and the average is 7 days.
Offering Amount: Treasury has 2 offering amount choices: a fixed offering amount or a range offering amount. The offering amounts have ranged between $1 billion to $34 billion and the average is $6 billion.
Auction Process: Treasury announces, auctions, and places Term Investments. The announcement describes the offering amount (fixed or range), length of term and acceptable collateral. Treasury determines the award rate. The auction results are posted within 10 - 20 minutes of the auction close. The awarded funds settle through the institution's reserve account (or their correspondent's reserve account).
Bid Submission: Participants are able to submit bids immediately after Treasury makes the announcement through the posted auction close time.
Bid Requirements: Minimum of $10 million per individual bid. Increments of $1 million after the initial $10 million bid. Multiple bids at different rates are permitted.
Bid Format: Requisite format requires bids to be submitted to three decimal places.
Stop Out Rate: The interest rate is set through a single-rate auction process. The stop out rate is the interest rate at which all awarded institutions will pay upon maturity. The stop out rate is also referred to as the lowest accepted bid rate.
Investment Amount: When Treasury offers a fixed amount, the amount invested is typically equal to the offering amount. When Treasury offers a range amount, the amount invested will fall within the range of the announced upper-limit and lower-limit.
Collateral: Acceptable collateral is typically TT&L collateral and commercial loans held in a Borrower-in-Custody (BIC) arrangement. However, Treasury reserves the right to restrict acceptable collateral to TT&L collateral only.
Balance Limit: Each participant will provide to the Treasury a term account balance limit. The balance limit provides an indication of the participant's estimated overall TIO participation. The reported balance limit does not limit a participant's ability to be awarded funds.
Placement: Funds are typically placed by 2:00 p.m. ET on the investment date. The current collateral value in the awardees' account at 12:00 p.m. ET must be sufficient to receive the full awarded amount. If the collateral value at placement time is not sufficient, the investment will be placed up to the collateral value at that time (rounded to the nearest million).
Withdrawal: At maturity, funds will be withdrawn from the TIO account by 2:00 p.m. ET. Interest is calculated and charged at that time.

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   Last Updated:  March 14, 2014