IFR International - 21.07.2018

0EOPLE

&-ARKETS

Fed's Libor alternative gaining acceptance

)NûJUSTûAûFEWûMONTHSûOFûEXISTENCEûTHEû
SECUREDûOVERNIGHTûlNANCINGûRATEû3/&2 û
ISûGAININGûTRACTIONûASûAûVIABLEûALTERNATIVEûTOû
REPLACEû,IBORûWHENûITûCEASESûTOûEXISTûINû
ûTHEû.EWû9ORKû&EDûANDûANûINDUSTRYû
panel said last week.
4HEû&EDERALû2ESERVEû"ANKûOFû.EWû9ORKû
STARTEDûPUBLISHINGû3/&2ûRATESûONû!PRILûû
ANDûTRADINGûINû3/&2ûFUTURESûBEGANûTWOû
months ago.
Already on a daily basis there were
MOREûTRANSACTIONSûUNDERLYINGû3/&2û
FUTURESûTHANûTHOSEûUNDERPINNINGû,IBORû
ACCORDINGûTOû53û&EDERALû2ESERVEû'OVERNORû
Randal Quarles.
3/&2ûNOWûREmECTEDûMOREûTHANû
53BNûOFûOVERNIGHTûREPOûTRANSACTIONSû
EVERYûDAYûHEûSAID
)NûCOMPARISONûINûAûTYPICALûDAYûTHREE
MONTHû,IBORûFUNDINGûTRANSACTIONSûTOTALLEDû
ABOUTû53MûANDûONûMANYûDAYSûITûWASû
MUCHûLESSûHEûSAID
h/NEûOFûTHEûMANYûBENElTSûOFûUSINGûAûRATEû
SOûlRMLYûANCHOREDûINûAûMARKETûOFûTHISû
DEPTHûISûTHATûNOûONEûCANûQUESTIONûWHETHERû
3/&2ûISûREPRESENTATIVEv
h)TûCLEARLYûISvûHEûSAIDûINûAûPRE
RECORDEDû
VIDEOûPLAYEDûATûTHEû!LTERNATIVEû2EFERENCEû
2ATESû#OMMITTEEû!22# ûROUNDTABLEûINû
.EWû9ORK

SAFER SYSTEM

,IBORûnûORû,ONDONû)NTERBANKû/FFEREDû2ATEûnû

was used for decades as a global

BENCHMARKûBUTûISûBEINGûTERMINATEDûBYûTHEû

end of 2021 after being linked to a string of

trader manipulation scandals in the

banking industry.

4HEû.9û&EDûINITIATEDûWORKûONûlNDINGûANû

ALTERNATIVEûFORû,IBORûnûWHICHûISûESTIMATEDû

to reference roughly US$200trn of

securities – in 2014 by setting up the

!22#ûWHICHûHASûINDUSTRY

WIDEû

representation.

!NDûWITHûTHEû!22#ûBACKINGûAû4REASURYû

REPOûRATEûBENCHMARKûTHEû.EWû9ORKû&EDû

WORKEDûWITHûTHEû&EDERALû2ESERVEû"OARDû

ANDû/FlCEûOFû&INANCIALû2ESEARCHûTOûCREATEû

3/&2

4HEû!22#SûCHAIRMANûANDû*0û-ORGANSû

CHIEFûREGULATORYûOFlCERû3ANDRAû/#ONNORû

SAIDû3/&2ûWASûTHEûhBASISûTOûBUILDûAûSAFERû

lNANCIALûSYSTEMv

7ITHûVOLUMESûINûEXCESSûOFû53BNûhITû

is already possibly the most robust

referenced benchmarked rate in the

WORLDvûSHEûSAID

Acceptance of the benchmark by the

PRIVATEûSECTORûHASûBEENûENCOURAGINGûWITHû

CHICAGO MERCANTILE EXCHANGE introducing

THREE

MONTHûANDûONE

MONTHû3/&2ûFUTURES

#LEARINGHOUSEûLCH said last week it had

CLEAREDûTHEûlRSTûDOLLARûINTERESTûRATEûSWAPSû

REFERENCINGû3/&2û#REDITû3UISSEû'OLDMANû

3ACHSûANDû*0û-ORGANûWEREûAMONGûTHEûlRSTû

PARTICIPANTSûTOûCLEARûSWAPSûUSINGûTHEûRATEûITû

said.

4HEû!22#ûSENTûAûLETTERûTOû53ûREGULATORSû

ASKINGûTHEMûTOûCONSIDERûEXEMPTIONSûFORû

legacy swaps seeking to incorporate the

)NTERNATIONALû3WAPSûANDû$ERIVATIVESû

!SSOCIATIONSûPROTOCOLûFORûAMENDINGûTOû

MOVEûFROMû,IBORûTOû3/&2

1UARLESûSUPPORTEDûTHEIRûMOVEûANDûSAIDû

REGULATORSûSHOULDûhAVOIDûPLACINGû

unintended hurdles in the way of those

WHOûMAYûSEEKûTOûTRANSITIONûFROMû,IBORv

1UARLESûSAIDûTHEû&EDûWASûCONSIDERINGû

PUBLISHINGûAûCOMPOUNDûAVERAGEûOFû3/&2ûTOû

encourage more use of the rate.

“It has been suggested that we could call

ITû3!&2ûFORûSECUREDûAVERAGEûlNANCINGûRATEû

and this is something that we are

ENCOURAGINGûOURûSTAFFûTOûEXPLOREvûHEûSAID

h)FûTHEREûWEREûAûLARGEûVOLUMEûOFû

products referencing the compound

AVERAGEûRATEûTHEREûWOULDûLIKELYûBEûRELATEDû

demand for futures contracts to hedge

THOSEûPOSITIONSûHELPINGûTOûMAKEûTHEû

FORWARDûRATEûMOREûROBUSTvûHEûADDED

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