Fed Formally Considers Proposal to Replace LIBOR w/ Repo Rates

--Requests Public Input on 3 New Rates

--Secured Overnight Financing Rate Selected by Banks as LIBOR Alternative

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve Board on Thursday gave formal notice

that it will consider a proposal by the New York Fed and the Office of Financial

Research to publish three new reference rates based on overnight repurchase

agreement transactions, one of which will likely serve as the successor to LIBOR

as a benchmark reference rate for financial transactions. 

     That rate, the most comprehensive of the three, is to be called the Secured

Overnight Financing Rate, or SOFR, the Fed said. It was selected in June by 15

commercial banks as their recommended alternative to the U.S. dollar London

interbank offered rate, the market for which had not only become less viable but

had also been discredited in recent years by charges of rate-rigging.

     "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," Fed Gov. Jerome H. Powell said in a statement. 

     All three rates are based on transactions secured by Treasuries and are

intended to reflect the cost of short-term secured borrowing in highly liquid

and robust markets, the Fed said. The New York Fed intends to begin publication

by mid-2018, it said. 

     In publishing the notice in the Federal Register, the Fed said it is

requesting comment to help it consider and develop the proposal. Any member of

the public can submit comments in the next 60 days. 

     The SOFR would include tri-party repo data from Bank of New York Mellon and

cleared bilateral and GCF Repo data from the Depository Trust & Clearing Corp.

     The other two rates are the Tri-party General Collateral Rate (TGCR), which

is based solely on triparty repo data from BNY Mellon, and the Broad General

Collateral Rate (BGCR), which is based on the triparty repo data from BNY Mellon

and cleared GCF Repo data from DTCC.

     The Fed publish a notice of proposed rulemaking in the Federal Register

requesting comment on provisions of each of the rules.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

[TOPICS: M$U$$$,M$$FI$,MN$FI$,MN$MM$,MN$RP$]