EMMI drops Euribor+ methodology due to low transaction volumes

Dan Barnes

The European Money Markets Institute (EMMI), a non-profit group established by national banking associations in the European Union, has dropped the Euribor+ methodology, designed to ground the Euro Interbank Offered Rate (Euribor) benchmark entirely on transactions.

Euribor is a daily reference rate, published by the EMMI based on the average interest rates for interbank lending in the Eurozone, which is used to price interest rate swaps.

EMMI found that the rate and volatility levels under quote-based and transaction-based methodologies are not sufficiently similar, and that the decrease in the daily market activity under the current market conditions, did not allow for a methodology which is fully based on transactions, as this would not yield a sufficiently sound and robust benchmark.

In September 2016, the Financial Services and Markets Authority (FSMA), as the national competent authority for Belgium, established the Euribor college and chaired its inaugural meeting. The college includes ESMA, the national competent authorities of the various banks contributing to the Euribor, as well as the national competent authorities of Member States for which the Euribor presents a systemic character because of its importance for their real economy, for the financing of households and enterprises, or for consumers in general.

The Euribor college, chaired by the FSMA, currently consists of 17 national supervisory authorities and ESMA. The ECB has attended its meetings as an invited expert.

In 2015, EMMI developed a methodology that would ground the Euribor entirely on transactions (Euribor+) and has subsequently carried out a ‘pre-live verification’ exercise, based on data gathered from 31 banks over a period running from September 2016 to February 2017.

On 4 May 2017, after consultation with the FSMA and as a result of its pre-live verification exercise, EMMI published its decision not to pursue a transition to the proposed Euribor+ methodology in the short term.

The college of Euribor says it will continue to engage with EMMI on alternative plans for Euribor reform and transition. EMMI will continue with the current quote-based Euribor methodology while developing a hybrid methodology supported by transactions whenever available, and relying on other prices when necessary.