US Fed to draft alternative repo rates
29 August 2017 Washington DC
Image: Shutterstock
The US Federal Reserve is to create three new “risk free” reference rates based on overnight repo transactions secured by US treasuries.
According to the Fed, the interest rates will be constructed to reflect the cost of short-term secured borrowing in highly liquid and robust markets.
“Because these rates are based on transactions secured by US treasury securities, they are essentially risk-free, providing a valuable benchmark for market participants to use in financial transactions,” the Fed said in a statement.
The Alternative Reference Rates Committee selected the secured overnight financing rate (SOFR), which the Fed described as the most comprehensive of the three rates, as its recommended alternative to the US dollar LIBOR.
SOFR would include triparty repo data from BNY Mellon and cleared bilateral and GCF Repo data from the Depository Trust & Clearing Corporation.
Federal Reserve board governor Jerome Powell said: “SOFR will be derived from the deepest, most resilient funding market in the United States. As such, it represents a robust rate that will support US financial stability.”
The second rate, to be called the triparty general collateral rate (TGCR), will be based solely on triparty repo data from BNY Mellon.
The final rate, to be known as the broad general collateral rate (BGCR) will be based on the triparty repo data from BNY Mellon and cleared GCF Repo data from DTCC.
All the proposed rates will be drafted in with the assistance of the Office of Financial Research.
Comments on the proposal to produce the three rates are requested within 60 days of publication in the Federal Register, which is expected shortly.
According to the Fed, the interest rates will be constructed to reflect the cost of short-term secured borrowing in highly liquid and robust markets.
“Because these rates are based on transactions secured by US treasury securities, they are essentially risk-free, providing a valuable benchmark for market participants to use in financial transactions,” the Fed said in a statement.
The Alternative Reference Rates Committee selected the secured overnight financing rate (SOFR), which the Fed described as the most comprehensive of the three rates, as its recommended alternative to the US dollar LIBOR.
SOFR would include triparty repo data from BNY Mellon and cleared bilateral and GCF Repo data from the Depository Trust & Clearing Corporation.
Federal Reserve board governor Jerome Powell said: “SOFR will be derived from the deepest, most resilient funding market in the United States. As such, it represents a robust rate that will support US financial stability.”
The second rate, to be called the triparty general collateral rate (TGCR), will be based solely on triparty repo data from BNY Mellon.
The final rate, to be known as the broad general collateral rate (BGCR) will be based on the triparty repo data from BNY Mellon and cleared GCF Repo data from DTCC.
All the proposed rates will be drafted in with the assistance of the Office of Financial Research.
Comments on the proposal to produce the three rates are requested within 60 days of publication in the Federal Register, which is expected shortly.
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