NYSE Liffe US reports volumes for potential LIBOR substitute

NYSE Liffe US, the futures exchanges operated by NYSE Euronext, last week traded US$100 billion worth of futures based on a new index it claims could be a strong alternative for LIBOR.

The DTCC GCF repo index, which lists the daily interest rates for the general collateral finance repurchase agreements market, traded almost 20,000 contracts in its first week of trading, with 10,980 lots of open interest held on 20 July.

The underlying repo transactions upon which the index and its associated futures are based are cleared through US post-trade utility DTCC.

NYSE Liffe US CEO Tom Callahan believed the new index could offer an alternative to LIBOR, the benchmark used to track banks’ overnight lending rates that is currently under investigation by regulators for manipulation. LIBOR is currently used as a reference rate for a multitude of derivatives contracts.

“The main criticism of LIBOR is that it is essentially little more than an opinion poll that asks banks to estimate unsecured lending rates,” Callahan told “Furthermore, there isn’t much bank-to-bank lending occurring outside of the overnight market, further calling into question the ability for LIBOR to act as an accurate proxy for lending rates.”

By comparison, the GCF is based on secured trades in underlying cash treasury and agency mortgage-backed markets, worth over US$300 billion. According to Callahan, the fact that trades in the GCF index are centrally cleared offers it a higher degree of reliability than LIBOR, which is largely based on lending estimates.

While noting that familiarity with the GCF Repo index is growing, Callahan admitted that using the instrument to replace LIBOR would be a long-term goal. Market participants have indicated that attempting to use a completely different benchmark to replace LIBOR would lead to a tough and potentially unmanageable transition period. Furthermore, the futures on the GCF Repo index are based on short-term repo transactions, leaving some market participants sceptical as to its reliability as a basis for longer-term swaps.

Barclays Bank was fined over US$450 million by UK and US regulators for manipulating LIBOR both to benefit the bank’s own positions and to boost the perceived health of the interbank lending market during the credit crunch. More of the 18 banks that set LIBOR are likely to become embroiled in the scandal in the coming weeks and months.

Anish Puaar +44 (0)20 7397 3817