Fed opens comment period on Libor replacement proposals

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The Federal Reserve Board of Governors have opened a comment period for a proposal to publish as many as three new overnight repo-based reference rates as a potential replacement for the London Interbank Offered Rate (Libor).

Among those potential alternative reference rates is the Secured Overnight Financing Rate, which was selected by a government-run committee of market participants because of its inclusion of tri-party repo data from Bank of New York Mellon as well as interdealer transaction data overnight repo data from the Depository Trust & Clearing Corp. That broad Treasuries refinancing rate is being launched by the New York Federal Reserve.

"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 U.S. financial stability," said Federal Reserve Board Governor Jerome H. Powell.

The Fed also wants comments on another proposed rate that would be based solely on the BNYM repo data, the Tri-Party General Collateral Rate (TGCR), as well as the broad general collateral rate that would include BNYM repo data and only the cleared GCF repo data from the DTCC, excluding bilateral clearings data.

The comment period on the replacement rate proposals will be 60 days following publication in the Federal Register, expected “shortly,” according to the Fed.

The alternative reference rates committee announced in June its recommendation of a broad Treasuries repo financing rate as an eventual replacement for U.S. dollar Libor, which is derived from polling data. Libor is used as a reference rate for trillion of dollars in financial products around the world, including U.S. leveraged loans and collateralized loan obligations.

In July, the U.K. Financial Conduct Authority announced that LIBOR would be phased out by 2021, hastening the search for a replacement reference rate.

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