Definition
The term System Open Market Account refers to a portfolio containing the assets acquired and to be sold during open market operations. The System Open Market Account (SOMA) is managed by the Federal Reserve Bank of New York.
Explanation
Also referred to as the SOMA, the System Open Market Account is a portfolio primarily composed of assets acquired, and available to sell, through open market operations. The Federal Reserve has three tools to leverage when attempting to achieve its monetary policy objectives: the discount rate, the reserve rate, and open market operations. The purpose of the SOMA is threefold:
It allows the Federal Reserve to better manage reserve balances.*
It acts as collateral for currency in circulation and any other liability appearing on the Federal Reserve's balance sheet.
It provides liquidity in the event of an emergency.
For example, SOMA is used by the Federal Reserve, and more specifically the Federal Reserve of New York, to carry out open market operations, which involve the purchase and sale of government securities in order to increase or decrease the money supply. The assets purchased or sold are added to, or removed from, the SOMA portfolio.
The portfolio itself is managed by an appointee of the Federal Open Market Committee (FOMC) and is typically a senior manager of the Federal Reserve Bank of New York. Along with the other 12 members of the FOMC, the SOMA portfolio manager can participate in monetary policy discussions during the eight regularly scheduled committee meetings each year.