In late 2017, GFMI’s President and CEO, Ken Kapner, wrote an article about the London Interbank Offered Rate (LIBOR), which is used by capital markets participants as the rate by which they would lend each other money. For a variety of reasons, including the realization that the rate was being manipulated, banks, governments, and other capital market participants sought to find and use other money market benchmark rates – ones that would not be so easily manipulated. Various countries recommended different options for replacement rates, including three different overnight Treasury Repo rates in the US, SONIA (Sterling Overnight Index Average) in the UK, and SARON® (Swiss Average Rate Overnight) in Switzerland. As it turned out, the Federal Reserve began publishing the new rates in the second quarter of 2018.

Looking at this issue a year later (November 2018), different benchmarks have made their way into the markets, including ESTER (Euro Short-Term Rate). In addition, new products have emerged that use both secured and unsecured floating rates. So, the market seems to be trying out these new benchmarks! We look forward to seeing which survive and thrive.

If you haven’t already done so, we encourage you to download both articles: LIBOR SCHMIBOR: What’s Next? SOFR Part I and LIBOR SCHMIBOR: What’s Next? SOFR Part II. In these articles, you’ll learn more about:

  • LIBOR explanation
  • Potential LIBOR replacements
  • Repurchase agreements (repos) and Tri-party Repo
  • International benchmarks
  • Looking ahead
  • SOFR Definition
  • Applications and new products
  • International benchmarks update

If you’re not already familiar with or well-versed in repos, or if you would like to learn more, GFMI offers courses, including Repurchase Agreements and Securities Lending. This course provides fundamental knowledge of repurchase agreements and securities lending and their differences. The course starts off explaining the basics of the repo and sec lending markets and then examines traditional applications. It explores how the Federal Reserve uses repurchase agreement and explains the applications of more complex strategies.

As always, GFMI stands ready to help you and your organization with your professional education needs. Give us a call at +1 516 935 0923 or email at consult@gfmi.comto discuss.