On 15 March the European Central Bank (ECB) published its second consultative report on the development and publication by the ECB of a Euro unsecured overnight interest rate (link). The ECB intends to produce new rate assessment, which would be based entirely on transactions in Euro reported by banks in accordance with the ECB’s money market statistical reports, by 2020. It also intends to complement the existing benchmark rates produced by the private sector and will be design to serve as a backstop rate. The consultative document addresses proposed detailed parameters of the new rate, including:

  • Data sufficiency – the ECB notes that there is sufficient data to produce a reliable daily rate based purely on deposit transactions conducted  with financial counterparties. Transactions below EUR 1 million are not intended to be taken into the account for new rates’ calculation.
  • Calculation methodology – the consultative document includes four different calculation methodologies for industry input, and which include (1) a volume-weighted mean, (2) a volume-weighted median, (3) a volume-weighted mean with trimming applied at the 10% level and (4) a volume-weighted mean with trimming applied at the 25% level. The latter is flagged as the Eurosystem’s preferred option.
  • Operational parameters – the ECB proposes that the rate will be published on a daily basis, at the latest by 09:00 CET on the following business day. The ECB also put forwards proposed data sufficiency policy and contingency procedure.
  • Use of the rate – the ECB notes that the market welcomes the development of the new overnight rate, and as such it intends to start publishing regular rate runs  for the new rate in the second half of 2018 once the final methodology has been decided.

Comment period is open until 20 April 2018.