The European Central Bank (ECB) has published its first public consultation on developing a euro unsecured overnight interest rate. The interest rate would complement existing benchmark rates produced by the private sector and serve as a backstop reference rate. The rate is intended to be finalised before 2020.

The ECB’s consultation is in two parts, Part A discusses activity in the unsecured euro money market and Part B sets out the consultation on the ECB’s approach to the design of the interest rate.

Part A consists of three sections. The first section focuses on money market activity. In view of the potential use of the ECB rate as a benchmark, the first section reviews the IOSCO recommendation that a benchmark should be based on an active market and thereby assesses the appropriateness of the unsecured money market in terms of it being an active market, looking at its liquidity, size and concentration. The second section of Part A reviews the current use of unsecured overnight benchmark rates, which are of systemic importance and, as such, of relevance to financial stability. As the ECB has announced that the new rate will be based on the money market statistical reporting (MMSR) data, the third section of Part A considers in greater detail the possible use of such data for the design of the new rate. More specifically, it sets out the features of the MMSR and evaluates possible ECB rate design factors based on the MMSR data. This includes an evaluation of the activity in the various segments of the unsecured money market, as well as of market concentration aspects. Against this background, Part B sets out consultation questions related to the design factors and the timing of the rate’s publication.

The deadline for comments is 12 January 2018.

View First public consultation on developing a euro unsecured overnight interest rate, 28 November 2017