CME Group to offer futures and options on Treasuries repo financing rate

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By Flora McFarlane.

CME Group has announced that will launch futures and options based on the broad Treasuries repurchase agreement (repo) financing rate, set as a benchmark by the Alternative Reference Rates Committee (ARRC) in June 2017.

Following demand from regulators, including the Federal Reserve, the ARRC worked on finding an alternative to the London Interbank Offered Rate (Libor) in derivatives transactions in response to revelations of attempted manipulation and false reporting of global reference rates over the years.

The Bank of England announced in April its decision to use Sterling Overnight Index Average (SONIA) as its preferred near risk-free benchmark (RFR) for use in sterling derivatives and relevant financial contracts.

SONIA, which received market support, reflects bank and building societies’ overnight funding rates in the sterling unsecured market, aiming to contribute to an improvement in the resilience of the financial system.

In the United States, the ARRC considered a variety of elements in setting the broad repo rate in certain new US dollar derivatives and other financial instruments.

Factors considered included the depth of the underlying market and its forecast robustness, consistency in line with IOSCO principles, as well as the rate’s usefulness to market participants.

CME expects to launch the futures and options in the first half of 2018, after the Federal Reserve Bank of New York and the US Treasury Office of Financial Research begin publishing the rate.

©TheDESK 2017

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