ECB publishes results of second consultation on proposed new interest rate


In May 2018, the European Central Bank (ECB) published a summary of the comments by market participants and third parties on its proposal to introduce a new euro unsecured overnight interest rate. This was the second public consultation in the ECB’s plan to implement the rate before 2020. Summary of the results from the first public consultation can be found here.

The following is a summary of the responses:

  • а EUR 1,000,000 threshold would ensure an adequate representation of the rater, while simultaneously reducing the administrative burden (it is expected that the average and minimum number of transactions per day will remain significant);
  • republishing the rate must be performed only in cases where a manifest error has been determined between the published and recalculated rate;
  • there should be further clarification on the proposed formulation of the methodology for the contingency rate; and
  • publication of the following variables on each TARGET2 day would ensure a higher level of transparency for the following:
    • rate for the day in question, to three decimal places (this was confirmed by respondents as an adequate approach);
    • total volume of transactions before trimming;
    • number of banks reporting transactions before trimming;
    • number of transactions before trimming;
    • percentage of volumes reported by the largest five banks (concerns related to confidentiality and market manipulation were raised about this indicator);
    • calculation method: normal or contingency; and
    • rates and volumes at 25th and 75th percentiles of volume.

Further to the ECB’s questions, the participants raised a number of topics in relation to the implementation of the rate, such as:

  • launch date and name;
  • final determination on when the rate will be published;
  • transition period (from old benchmarks to the new rate);
  • differences with EONIA (especially in respect to hedging transactions).

We will update you once the ECB provides further information on the matter. In the meantime, for further information on this topic, please do not hesitate to contact us.