EBS BrokerTec, ICAP’s ISS Launch New Sterling Index Rate

The new £RIR index measures the cost of funding for sterling bonds.

EBS BrokerTec, ICAP’s electronic foreign exchange (FX) and fixed-income business unit, along with ICAP Information Services (IIS), its information arm, has collectively launched a new Sterling Repo Index Rate (£RIR), according to an ICAP statement.

The new £RIR index measures the effective cost of funding for Sterling Government bonds, which will be calculated and disseminated by IIS on a daily basis. £RIR works by utilizing select one-day repo trades executed across the BrokerTec Market electronic central limit order book for the fixed income markets and centrally cleared through a central counterparty clearing house (CCP).

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In particular, the £RIR index is based on a unified settlement value that takes into consideration overnight, Tom-Next and Gilts. Overall, the Brokertec Market boasts upwards of $28.8 billion (£20 billion) in daily volumes in sterling sovereign repos – these are derived from general collateral, DBV and specific collateral repo trades.

The £RIR works by taking a volume-weighted average of repo rates across these trades, which then in turn use UK government bonds as collateral. The overall result is the provision of an insight into the overall cost of funding in the dealer-to-dealer market following a groundswell of interest from the repo dealer community.

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According to John Edwards, Managing Director of BrokerTec Europe, in a recent statement on the launch: “Following the Bank of England’s working group on a Sterling Risk-Free Reference Rate in the fixed income markets, customers are increasingly looking for an effective measure of the cost of funding in the Sterling repo markets.”

“Through £RIR, BrokerTec has launched the overnight index for the secured market which it hopes will become the central reference rate for transactions in the Sterling market. The design is consistent with the IOSCO Principles for Financial Benchmarks based on sufficient market data to produce a robust and reliable index,” he noted.

“By combining trade-backed data from the BrokerTec Market platform with transparent methodology and our independent governance model, we hope the £RIR will become a vital tool for market participants to assess the cost of funding in the Sterling repo market and finance and cover their bond positions accordingly,” added Jan de Smedt, Global Head of Indices, IIS in an accompanying statement.

Last month, EBS BrokerTec made headlines after it had its Treasury platform selected by the UK’s Municipal Bonds Agency (MBA). The EBS Treasury platform was chosen to help facilitate and leverage direct borrowing and lending of cash between UK authorities with the aim of providing an electronic, direct trading solution.

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