Fed-sponsored TMPG expands scope to agency debt, MBS

NEW YORK, March 30 (Reuters) - An industry group sponsored by the New York Federal Reserve that promotes best practices in the U.S. Treasury market said on Tuesday it is expanding its focus to include agency debt and agency mortgage-backed securities.

The Treasury Market Practices Group said in a statement that the expansion reflects the "extensive overlap" of trading and settlement structures and investors across the Treasury, agency debt and agency MBS markets.

The group said it will focus on trading and settlement in agency debt issued or guaranteed by Fannie Mae, Freddie Mac and Federal Home Loan Banks and in MBS issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.

The Federal Reserve Bank of New York formed the Treasury Market Practices Group in 2007 after telling the industry to address the issue of market manipulation. Last year the group introduced a penalty charge when a repurchase trade fails after a long bout of failed trades got the attention of regulators.

The repurchase, or repo, market is a key source of funding in the fixed-income markets. A repo trade "fails" when a dealer does not return a security like a Treasury to another player on time.

The group said it is likely to consider issues associated with settlement fails in the agency MBS and agency debt market.

The TMPG's membership, currently made up of representatives from dealers, buy-side firms, custodians and other market participants, will likely "evolve over time" to reflect the expanded focus, it said.

Brian Sack, head of the New York Fed's Markets Group welcomed the group's decision to expand.

"Having sound and efficient markets in Treasury debt, agency debt, and agency MBS is critical to investors and policymakers alike," he said.

(Reporting by Kristina Cooke, Editing by Chizu Nomiyama)