SIFMA Backs DTCC’s Rate to Replace LIBOR

The US Treasury Borrowing Advisory Group of the Securities Industry and Financial Markets Association (SIFMA), an industry group, threw its support behind the Global Collateral Finance Repo Index – an overnight lending rate published by the Depository Trust and Clearing Corp (DTCC) – in the search for a rival to the tarnished LIBOR benchmark rate.

Last week’s announcement has shifted interest away from federal funds and T-bills, previously considered favorites to replace LIBOR among traders who no longer trust the rate’s objectivity. At the Advisory Group’s May meeting, Fed funds received 6 votes and T-bills received 4, while only 3 members backed a general collateral rate (GCF).

Although a liquid derivatives market for GCF is still in the early stages of development, the vote swing reflects a widely felt optimism for the instrument’s prospects.

“New futures contract launches are notoriously difficult to get going, but just two weeks in, this already looks like a mature market with half0tick markets right through about the first 13 months,” said Thomas Callahan, CEO of NYSE Liffe US, which launched GCF Repo Index Futures on July 16. “We’ve got contracts listed out for two years and active quotes through about September 2013, so this is already looking like a mature market.”

It remains to be seen whether the Treasury finalizes its preference for a general collateral rate. A decision is expected by early 2013.

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