All futures contracts have an “underlying” market or reference rate against which the contract, on expiry, settles. For Liffe’s STIR futures contracts this reference rate is a cash market rate, for example, for the Exchange’s EURIBOR contract, the underlying reference rate is the European Banking Federation’s EURIBOR benchmark.

Likewise, for our Eurodollar contract, the underlying reference rate is the British Bankers’ Association’s (BBA) offered rate for three month US dollar deposits (BBA US$ LIBOR), which is fixed on a daily basis at 11:00 Hrs London time.

“Eurodollars” are US dollar denominated bank deposits that are deposited in banks/jurisdictions that are not subject to US banking regulations, specifically control by the Federal Reserve Board. Originally, these deposits were held, almost exclusively, in Europe; hence their collective name – Eurodollars. However, Eurodollars are now used as a collective name for US dollars held anywhere other than the US.

BBA LIBOR (London Inter-bank Offered Rate) is compiled each London business day by the BBA. LIBOR itself is generated by the submission of market activity and market quotes to the BBA by a representative panel of banks (which is constructed to reflect the balance of the market in terms of country and type of institution).

These quotes are then ranked by the BBA, the top and bottom quartiles are then disregarded, and an average is generated from the remaining two quartiles. This average is then used to create the BBA LIBOR “spot fixing”. This “spot fixing” is then published through a number of international distribution networks, which include; Reuters, Bloomberg and Thomson Financial. 

To find out more about the BBA and the construction of BBA LIBOR please visit the BBA’s website; www.bba.org.uk