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Presentation Materials

The Alternative Reference Rates Committee August 1, 2017

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Data rel eleased b by the e Fed ederal R Res eserve B e Bank of Ne New Y York i indicates es that the e broad T Treasuries rep epo rate recommend nded d by the he ARR RRC ha has t tende nded t to lie be between n na narrower GC r rates, s suc uch h BNY M Mello lon’s Treasury Tr Tri-Party Ra Rate, and nd DTCC’s G GCF T F Treasury Repo po Ra Rate.

0.2 0.4 0.6 0.8 1 1.2 1.4 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17

Broad Treasuries Repo Rate Tends to Be Between GCF and BNYM Repo Rates

Broad Treasuries financing rate GCF BNYM Median Triparty Treasury Rate Percent

Source: Federal Reserve Bank of New York (http://www.newyorkfed.org/medialibrary/media/research/blog/2017/LSE_2017_Cipriani_broadfinancing_data.xlsx ), Bank of New York Mellon, DTCC.

The d he differ eren ence betwee een t n the G he GCF r rate a e and n nd narrower er GC tri-party rates w wide dened ed in 2 n 2015, 5, b but ut prior t to t tha hat time t e thi his s sprea ead w was narrower er a as the d he differ erent segmen ents o s of the he repo epo m market t tend ended ed t to t trade a e at more h e homogen enous s rates. es. Inter ernal d data s sugges ests t s tha hat if a anything thi his s sprea ead m may h have b e been en even n even narrower er p prior t to 2 2012.

• 2. Thu

hus, s, p pub ublicly available h e historical s series es on o

• ver

vernight T Trea easur sury repo epo rates a es appea ppear t to b be r reaso sonable e proxies i es in m model delling how a a broad r repo po rate might h have b e beha ehaved ed prior t to 2 2014. 4.

• 0.1

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17

The Difference Between GCF and BNYM Median Triparty Rates Was Smaller Prior to 2015

Average 2012-14 = 4bp Average 2015-17 = 13bp

Percent

Source: Bank of New York Mellon, DTCC.

OIS contracts pa pay a a compound nd a average o

• f t

the he o

• vernight r

rate i inde ndex. x. The he publ publicly avail ilable s series can n be be us used d to compa pare hi historic ical movements i in n a compound nded a d average overnight T Treasury repo r rates t to the he compo pound unded a d average of t the effective f fed f funds rate o

• r t

to 3 3-Month LIB IBOR. .

1 2 3 4 5 6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Forward Compounded Repo Rate Compared to Forward Compounded Effective Fed Funds and 3-Month LIBOR

Compound Overnight Treasuries Repo Rate Compound Effective Fed Funds Rate 3M LIBOR Percent

Forward Compounded Repo and Fed Funds Effective Rates are compound geometric averages of daily rates over the subsequent quarter. Repo rate data: Aug 2014-2017 from the Federal Reserve Bank of New York (http://www.newyorkfed.org/medialibrary/media/research/blog/2017/LSE_2017_Cipriani_broadfinancing_data.xlsx ) prior data from ICAP/NEX (source: Bloomberg series IREPUSOP Index); Effective Fed Funds Rate: Federal Reserve Bank of New York; LIBOR: Ice Benchmarks Administration.

Some c commentators a argue ue tha hat no nonfina inancia ial c corporates us use LIBOR be R because, a as an n uns unsecured d fundi unding rate, i , it he helps to he hedg dge no nonfina inancia ial corporates’ own c n cost of uns unsecured f fundi unding

• ng. However, L

LIBOR R ha has not his istoric ically been a all ll t that w well ll c correlated with measures o

• f n

nonfinancia ial c corporate fundin ing c costs – in n fact, O , OIS rates ha have typi picall lly be been n closer.

1 2 3 4 5 6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Do Nonfinancial Corporates Need a Rate with Bank Credit Risk? 3-Month Nonfinancial CP Rates are Closer to OIS than to LIBOR

3M LIBOR 3M OIS 3-Month Nonfinancial Commercial Paper Rate Percent

Source: Bloomberg, ICE Benchmarks Administration, Board of Governors of the Federal Reserve (Nonfinancial Commercial Paper Rates).