Benoît Cœuré, Member of the Executive Board of the ECB, gave a speech on 27 September 2016 at the annual meeting of the Money Market Contact Group. The speech was about Reforming Financial Sector Benchmarks.
In it, he focusses on the reform of EURIBOR from a quote-based to a transaction-based index, which is set for 2017.
The speech highlights the importance of Euribor as a “critical” benchmark in the light of the vast number of contracts which use it as a reference – more than €180 trillion of derivatives contracts and more than €1 trillion of retail mortgages.
More specifically, he said: " The EURIBOR reform has now reached an important stage. The transition to the transaction-based methodology is foreseen for 2017 and the administrator is planning a pre-live verification exercise to ascertain the feasibility of the proposed methodology under current market conditions. For the pre-live verification – and eventually for the EURIBOR reform – to be a success, broad market representation has to be achieved. Therefore, not only should current panel members participate but also other banks in the euro money market."
" A lack of participants might seriously threaten the completion of the pre-live verification and ultimately the reference rate itself. Therefore, in view of the tremendous importance of benchmarks such as EURIBOR, the ECB would like to see banks take responsibility for the benchmark in two ways. Firstly, by participating in the pre-live verification and secondly, by eventually joining the panel of contributors to EURIBOR with the launch of the new calculation methodology."
The EMMI has reacted that it welcomes the comments made by Mr Cœuré.
Whilst the move to a transaction-based methodology is essential to do justice to the importance of such a critical benchmark, and was the overriding conclusion of such benchmark reform, recent reports published by ICE in respect of LIBOR indicate that this can vary massively between panels of member banks and currencies.
Increasing the size of the panel therefore seems the only logical conclusion and as such a welcome step. However, it is not sufficient in itself. Especially not if the data provided is only provided by the panel member banks, as is clearly the case with LIBOR. Independent corroboration in our view has to be a part of the solution that puts EURIBOR on a solid foundation, with the Euro taking on more and more of a global role.
In this context we, CMDportal, remain at the disposal of the regulator to provide what we see as independent corroborative data.
Incidently, Dutch Bank, ABN AMRO has started to refocus on the ECP market with a senior hire from Citibank.