Speed of information is decreasing
Yes, I said decreasing. Nowadays nobody is interested by real time news. Receiving yesterday news today in the morning is what is required.
A least that is the impression I get when looking at the RFR new benchmarks and their publication dates.
Why publishing the result related to data collected immediately when one can sleep on it overnight? There is obviously the risk that insider information can be used in the mean time, but we would stay up at night for such a triviality?
Probably some people at the central banks is needing a good sleep to dream yesterday benchmarks.
The T+1 issue is not just a transparency or "crazy quant that likes to rant about conventions" issue, this is a serious business problem, probably worth millions if not billions of dollars in developments. One of my previous blogs, on Variation margin in presence of trade cash flows, was one example of where the difference between T+1 and T can be huge in the flow of information for derivatives. All the collateral management would be simplified without the delay. When regulators are pushing for overnight based derivatives, the least we can expect from them is to smooth the path to adoption. The difference that T+1 makes is probably the impossibility to settle the overnight-linked derivatives on their natural settlement date. For currencies trading internationally, from Japan to US (in day light chronological order), those 14 hours difference between 7:00 p.m. and 9:00 a.m. is the difference between settlement processes that are achievable and those that are not achievable.
A least that is the impression I get when looking at the RFR new benchmarks and their publication dates.
| Old | New | |||
|---|---|---|---|---|
| Currency | Name | Lag | Name | Lag |
| USD | EFFR | T+1 | SOFR | T+1 |
| GBP | SONIA | T | Reformed SONIA | T+1 |
| EUR | EONIA | T | ESTER | T+1 |
Why publishing the result related to data collected immediately when one can sleep on it overnight? There is obviously the risk that insider information can be used in the mean time, but we would stay up at night for such a triviality?
Chacun sa méthode... Moi, je travaille en dormant et la solution de tous les problèmes, je la trouve en rêvant. (Personal translation: Each his own method... Myself, I work sleeping and the solution to all problems, I find it dreaming).
Drôle de drame (1937) - Marcel Carné
Probably some people at the central banks is needing a good sleep to dream yesterday benchmarks.
Why make it simple, when you can make it complex?
The T+1 issue is not just a transparency or "crazy quant that likes to rant about conventions" issue, this is a serious business problem, probably worth millions if not billions of dollars in developments. One of my previous blogs, on Variation margin in presence of trade cash flows, was one example of where the difference between T+1 and T can be huge in the flow of information for derivatives. All the collateral management would be simplified without the delay. When regulators are pushing for overnight based derivatives, the least we can expect from them is to smooth the path to adoption. The difference that T+1 makes is probably the impossibility to settle the overnight-linked derivatives on their natural settlement date. For currencies trading internationally, from Japan to US (in day light chronological order), those 14 hours difference between 7:00 p.m. and 9:00 a.m. is the difference between settlement processes that are achievable and those that are not achievable.
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