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CME to offer repo-backed futures and options

Published 07/26/2017, 11:40 AM
Updated 07/26/2017, 11:50 AM
© Reuters.  CME to offer repo-backed futures and options

By Karen Brettell

(Reuters) - The CME Group (O:CME) said on Wednesday that it will develop futures and options based on the repurchase agreement market, after a bank committee in June selected a benchmark repo rate to be used as an alternative to Libor in derivatives transactions.

The Alternative Reference Rates Committee (ARRC) selected a broad repo rate as a new benchmark at the behest of regulators, including the Federal Reserve, which worried that a decline in short-term bank lending since the 2008 financial crisis undermined faith in Libor and posed risks to the trillions of dollars of derivatives backed by the rate.

Around $150 trillion in private and exchange-traded derivatives are based on U.S. dollar-based London Interbank Offered Rate (Libor) rates.

The CME said it expects to introduce the new repo-backed futures and options, pending regulatory approvals, after the New York Fed and U.S. Treasury Office of Financial Research begin publishing the rate, expected in the first half of 2018.

The CME’s Eurodollar futures contracts are based on Libor and are frequently used by banks to hedge privately traded Libor-based interest rate swaps.

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