NY Fed on LIBOR Alternatives
The New York Federal Reserve's "Alternative Reference Rates Committee" announced the release of its "ARRC Interim Report and Consultation." A summary of the 34-page report says, "In response to the Financial Stability Oversight Council's recommendations and the objectives of the Financial Stability Board, the Federal Reserve convened the Alternative Reference Rates Committee (ARRC) on November 17, 2014 in a meeting with representatives of major over-the counter derivatives market participants and their domestic and international supervisors and central banks. The ARRC was convened to identify a set of alternative reference interest rates that are more firmly based on transactions from a robust underlying market and that comply with emerging standards, such as the International Organization of Securities Commission' Principles for Financial Benchmarks, and to identify an adoption plan with means to facilitate the acceptance and use of these alternative reference rates. Over the last year, the ARRC has focused on two main tasks, first, narrowing the set of potential alternative rates that might be chosen and, second, considering potential plans for transition to an alternative rate." It continues, "After extensive discussion, the ARRC has preliminarily narrowed the list of potential rates to two that it considers to be the strongest alternatives, the Overnight Bank Funding Rate and some form of overnight Treasury general collateral repurchase agreement (GC repo) rate. Because of the dominance of LIBOR in U.S. dollar interest rate derivative markets, planning for any transition to either rate poses a host of challenges. While the dealers and central counterparties currently represented in the ARRC play key roles in intermediating these markets, demand for interest rate derivatives is ultimately driven by end users. Therefore, it is key that end users play an integral role in the ultimate choice of an alternative and in an ultimate transition strategy. However, end users cannot be expected to choose or transition to trading a benchmark that does not have at least a threshold level of liquidity. Accordingly, the ARRC has thus far focused on formulating an initial transition strategy (the "paced transition") that could potentially provide this threshold level of liquidity <b:>`_. [F]urther work will be required -- following consultation and close involvement with end users -- both in developing the details of an initial transition strategy and in planning for a full transition strategy that would move a more significant portion of the derivatives markets away from LIBOR to the new rate." It adds, "Following the publication of this interim report, the ARRC intends to consult widely and closely with end users as it seeks to finalize a choice of alternative rate and transition strategies.... Comments on the consultation and any questions on the ARRC's plans can be delivered to `arrc@ny.frb.org. Comments should be received no later than July 15, 2016 and will be posted on the ARRC's website. In addition, the ARRC will host a roundtable at the Federal Reserve Bank of New York on June 21, 2016 and will host other roundtables in coming months if space does not allow for all interested parties to attend the June 21 roundtable."
