because we are going to change it
Good!
If you look at things from an objective point of view (not as a person seeking the highest return possible), I think you will see that markets are useful at setting prices, and we'd rather let the price be discovered organically instead of having some sort of agenda.The FRR can definitely be better, but it is very simple, and based on numbers that we don't create.
I respectfully disagree. They are being treated as market makers (placing limit orders) but are not "setting" any prices. I might say, one way to deal with the massive backlog of lenders is by filling orders on the bid side. Actually, as I post this, there's overlap in both sides of the lend book. Also, I did tweak your quote a little bit. I did not mean to change any wording.
I disagree, but mainly with your terminology. A market maker is literally "making a market" meaning that they are willing to take either side of a trade. So market making in this instance would mean that I am willing to take a swap at rate X, or offer a swap at rate Y. Placing limit orders is not solely the act of a market maker. That being said, they are not placing limit orders, in that technically a limit order is an order to be filled at a given price. If they aren't setting a price, it isn't a limit order. It probably has more in common with an opening or closing cross, in that it is kind of like a large auction at a price TBD, but it isn't exactly like that. It is also similar to a market order, in that they don't care what the price is.
Either way, overlap happens, usually, due to differences in time preferences. All that is offered is 2 days, all that is requested is 30 days, for example, so no match occurs.
Thanks for your comment though. And we will be changing it, but it will probably just be to make it more responsive and less liable to dampen the price movements.
I'll respond to some other comments below, which might have some relevance.