Federal Reserve Board Requests Public Comment on Proposed LIBOR Replacement

On August 24, the Federal Reserve Board (the Board) requested public comment¹ on a proposal for the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates based on overnight repurchase agreement (repo) transactions secured by Treasuries.

The most comprehensive of the rates, to be called the Secured Overnight Financing Rate (SOFR), would be a broad measure of overnight Treasury financing transactions and was selected by the Alternative Reference Rates Committee as its recommended alternative to U.S. dollar LIBOR. SOFR would include tri-party repo data from Bank of New York Mellon (BNYM) and cleared bilateral and GCF Repo data from the Depository Trust & Clearing Corporation (DTCC).

"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," said Board Governor Jerome H. Powell.

Another proposed rate, to be called the Tri-party General Collateral Rate (TGCR) would be based solely on tri-party repo data from BNYM. The final rate, to be called the Broad General Collateral Rate (BGCR) would be based on the tri-party repo data from BNYM and cleared GCF Repo data from DTCC.

The three interest rates will be constructed to reflect the cost of short-term secured borrowing in highly liquid and robust markets. Because these rates are based on transactions secured by U.S. Treasury securities, they are essentially risk-free, providing a valuable benchmark for market participants to use in financial transactions.

To assist the Board in considering the production of the proposed rates, it is seeking public comment on the following questions:

1. Would the proposed rates be useful to market participants, researchers or others?
   For what purpose(s)?
2. Is one or more of the proposed rates more likely to be useful than the other(s)?
   For what purpose(s)?
3. Are there changes to one or more of the rates that would make them more useful?
   For what purpose(s)?
4. Are there particular sources of data or data sets that should be incorporated in the calculation of the rates that would make the rates more useful to the public?
5. Are there changes that should be made to the proposed manner of calculating and publishing the three rates?
6. Is the proposed time of publication early enough to facilitate the use of the rates for various purposes?
7. Is the use of the volume-weighted median appropriate? Is there a different measure of the central tendency of the distribution of individual transacted rates that would be better suited? For what purpose(s)?
8. Are the proposed summary statistics useful to the market? For what purposes? Would other summary statistics be more useful to accompany the daily publication, instead of or in addition to those proposed?

Comments must be received within 60 days after publication of the request in the Federal Register.  

¹www.federalreserve.gov

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