By Chris Gillock
The LIBOR scandal and the push for transparency has created an opening for a new interbank lending enterprise. The American Financial Exchange (AFX) was three years in development and opened for business earlier this week. The Chicago Board Options Exchange is backing the new short-term lending platform, and the enterprise is the brainchild of Richard Sandor, the financial futures innovator that launched the Chicago Climate Exchange (the carbon credits trading marketplace) in 2003 . Sandor is serving as CEO of the new company. ASX will increase standardization and transparency, while lowering transaction costs, in the interbank lending market. ASX provides banks with an alternative to the Fed Funds market. It is possible that the new exchange will eventually serve commercial paper issuers as well as banks. In addition, ASX will attempt to establish a new benchmark interest rate, “Ameribor,” using proprietary methodology based on weekly auctions. Since the LIBOR benchmark has been tarnished due to rate manipulation by major banks, Ameribor might succeed in displacing the old standard.
Here is an article from today’s American Banker about the first day of ASX trading:
CBOE-Backed Loan Market for Banks Begins Trading
December 15, 2015
By Kristin BroughtonDecember 15, 2015
An interbank loan market that was created for small and regional banks has begun operations, recording $15 million in transactions on its first day.
The short-term loan market — known as the American Financial Exchange, or AFX — is designed as an alternative to the federal funds market, according to the Chicago Board Options Exchange. The CBOE unveiled plans for web-based platform this fall.
The first transaction — for a $5 million overnight, unsecured loan with a rate of 27 basis points — was made by the $28 billion-asset Frost Bank in San Antonio and the $27 billion-asset Associated Bank in Green Bay, Wis., the CBOE said.
Several additional banks also began trading, including the $16 billion-asset Arvest Bank in Fayetteville, Ark.; the $12 billion-asset Old National Bank in Evansville, Ind.; the $11 billion-asset MB Financial in Chicago; the $5 billion-asset ServisFirst Bank in Birmingham, Ala.; and the $4 billion-asset Brookline Bank in Brookline, Mass.
The CBOE did not provide details about the total number of banks that have signed up for the AFX.
In the coming weeks, the AFX will begin offering a 30-day, unsecured loans, according to the release.
Initial plans for the AFX included the creation of an interest-rate benchmark based on weekly transactions. The benchmark could serve as an alternative toLibor, which has attracted widespread criticism since the 2012 rate-fixing scandal.