The American Financial Exchange (AFX) announced the completion of the exchange’s first AMERIBOR interest-rate swap transaction. ED&F Man and First Merchants Bank entered into a bilateral and uncleared fixed versus 1-month AMERIBOR floating rate swap, with a 1-year maturity. The notional amount was $24 million, with payments netted monthly.
The transaction marks an important moment for AMERIBOR as it becomes a viable standard for swap markets following the transition away from LIBOR. According to The Bank for International Settlements (BIS), the global notional swap market value was estimated at $341 trillion in 2019 and AMERIBOR represents the actual cost of funding of more than 1,100 American banks and financial institutions.
AFX chair and CEO, Richard Sandor, said in a statement that “this first interest rate swap will set the path for other financial institutions that need to swap AMERIBOR based assets and liabilities to fixed-rate interest and vice versa”.
Currently, AFX membership across the US includes 165 banks and 44 non-banks, which is comprised of insurance companies, broker-dealers, private equity firms, hedge funds, futures commission merchants, and asset managers.
In a separate announcement, Chatham Financial announced that it had structured and executed the first AMERIBOR-indexed interest rate swap in a designated hedging relationship on behalf of First Merchants Bank.
“While the underlying transactions that are used to derive the AMERIBOR fixings have consistently grown since its introduction, the derivative markets based upon the rate are still in the nascent stages of development. This first transaction serves as a strong proof of concept that as this market continues to develop it can be an important risk management tool for financial institutions to manage loan and funding repricing risk,” according to the statement.