To ensure robustness and representativeness in the Underlying Interest, EMMI has developed and implemented a Benchmark Determination Methodology for Efterm®.
The Methodology follows a hierarchical approach consisting of three levels. These levels should be employed progressively:
- Level 1 - The first level of the waterfall consists of €STR-based OIS tradeable bid and offer prices and volumes collected for each defined tenor as available on the CLOBs of the selected Trading Venue(s) over a two-hour window spanning from 8:30 to 10:30 am CET on the day of the Efterm® calculation;
- Level 2 – The second level of the waterfall consists of €STR-based OIS dealer-to-client bid and offer prices and volumes as displayed for each defined tenor by the selected Trading Venue(s) over a two-hour window spanning from 8:30 to 10:30 am CET on the day of the Efterm® calculation;
- Level 3 - The third level of the waterfall consists of a step function model using €STR-linked futures' settlement prices, €STR rates, and the ECB reserve maintenance periods calendar to determine the implied average daily overnight rates, which are then compounded over the relevant tenor period to produce the corresponding Efterm® rate.
The European Money Markets Institute performs an annual review of the Efterm® methodology with a twofold objective:
- Confirming that the benchmark remains robust, resilient, and representative of its underlying market;
- Identifying any potential for further beneficial recalibrations.