Ameribor was less
erratic than SOFR
when the repo market
went haywire in
September.SOFR has proved
volatile, spiking
because of supply
differences in funding
markets.Fig. 1 Run {SOFRRATE Index AMERIBOR Index HS D <GO>} to compare the
Secured Overnight Financing Rate, or SOFR, with Ameribor.Harris covers interest rates and foreign exchange at Bloomberg News
in New York. Baker is an editor in Chicago.banks. And Sandor thinks half of that money—around $4.5 trillion—
is held in variable-rate products that need a new benchmark to
reflect their true costs.
Ameribor is a daily rate based on the volume-weighted
average of transactions in the overnight loan market between
preapproved counterparties, which include banks, broker-dealers,
and private equity firms, on the American Financial Exchange.
For someone accustomed to schmoozing finance profes-
sionals in London, New York, Paris, Shanghai, and Singapore, selling
institutions on Ameribor required a different itinerary. Sandor
found himself meeting with bankers in smaller towns, such as
Tupelo, Miss. (population 38,206), and Bentonville, Ark.
(population 51,111).
Now, he can even point you to the best barbecue joint in
the U.S.
AMERIBOR’S CHILLY RECEPTION was similar to what Sandor
remembers hearing when he evangelized for financial futures
decades ago. “It’s a stupid idea. Interest rates don’t fluctuate,”
he says.
But when the Fed convened ARRC to find a new rate in 2014,
Ameribor suddenly seemed less outlandish. In December 2015,
Sandor’s American Financial Exchange introduced the interest
rate with a handful of banks at Cboe Global Markets Inc., the market
operator formerly known as the Chicago Board Options Exchange.
The platform hosts more than 160 companies, mostly banks, and
just had a record week, as $13 billion traded on Sept. 16-20 amid
turmoil in the repo market.
Frost Bank, founded in the 19th century in the back of a
San Antonio store selling supplies to frontier Texans, took part in
the first overnight loan transaction in 2015 and still uses Ameribor
all the time. “It is the best proxy out there for where we can incre-
mentally fund ourselves in the short-term space,” says Mark Brell,
an executive vice president at the bank.AFX INTRODUCED AMERIBOR futures, also at Cboe, on Aug. 16. That’s
right out of Sandor’s playbook from 1977, when the Chicago Board
of Trade began offering contracts on the 30-year Treasury bond.
He says the first step is “the building of the cash market,” proving
that it’s volatile and that there’s a need to trade. The next step is
building a hedging tool, “because that’s the natural evolution of
markets.” Those 30-year futures began trading when the U.S. had
about $550 billion of debt outstanding. The government sold more
than that in the month of August 2019. Today, volume across the
Treasury futures franchise (which has expanded to include almost
every maturity) has exploded as the debt has swelled to $16 trillion.
The futures launch is just the beginning of Ameribor’s influ-
ence. To expand, Sandor and his team will keep meeting with
bankers, academics, accountants, and lawyers, trying to prove to
them that the benchmark is a true representation of interbank
lending costs. And that means more time traveling through tiny
towns, helping the smaller banks who finance “the milk farmers
and whatnot to the burgeoning tech sector in Indianapolis.”
Oh, and the best barbecue?
Sandor says it’s Joe’s Kansas City Bar-B-Que. “Joe’s is a
must.” It’s located at a gas station at West 47th Street and
Mission Road in Kansas City, Kan.34