I would like to propose two simple guidelines for liquidity operations. They won’t express the totality of our policy toward open market operations, but they really do capture the essential elements of it. I mention it here before implementing it to give shareholders and others a chance to comment, with the understanding amendments to the guidelines may be made.
They are prefaced on the reserve equilibrium concept: that there is an optimal reserve level (50% at zero money supply and 25% at 2 million USD and above, with linear reductions as we move from zero to 2 million USD money supply). The guidelines govern how we move toward equilibrium. Here they are:
Move 1% toward reserve equilibrium each day. Let us suppose we are $45,000 below equilibrium. $450 in NuShares should then be sold each day and placed in tier 1 to tier 4 reserves. As we move closer to equilibrium, the open market operation decreases in size, as it should. The rule has symmetry regarding buybacks and sales. If we were $45,000 above equilibrium, then $450 in NuShares would be purchased (for burning) each day.
Immediate NSR sales to meet a minimum reserve of 20% of reserve equilibrium. At last count, equilibrium reserve was $70,579. This means if our total T1 and T4 reserves do not equal or exceed $14,116 (20% of the equilibrium reserve figure), NSR should be immediately sold on the open market to restore the minimum reserve.