An interbank loan market for community and regional banks, and backed by the Chicago Board Options Exchange, plans to open for business next month.
The American Financial Exchange, or AFX, will offer contracts for overnight loans to banks with between $500 million and $125 billion in assets. The exchange is designed as an alternative to the federal funds market.
The Chicago Board Options Exchange unveiled plans this fall for the AFX; the CBOE will operate the private, online market.
“AFX was designed to bring the exchange model of standardization, transparency and a rules-based process to interbank lending, while helping to reduce transaction costs,” Richard Sandor, chairman and chief executive of the AFX, said in a Tuesday news release.
The release did not mention how many banks have signed up for the AFX. Northern Trust in Chicago will act as the settlement bank for the transactions.
The AFX may eventually provide an interest rate benchmark based on weekly auctions, the CBOE said in September. The benchmark could serve as an alternative for Libor, which has attracted widespread criticism since a 2012 rate-fixing scandal.
Additionally, Carole Brookins and Arthur Kelly have both joined the AFX board. Brookins was executive director of the World Bank from 2001 until 2005. She is currently managing director of the consulting firm Public Capital Advisors. Kelly is CEO of KEL Enterprises, a private equity firm in Chicago.
In addition to his position with AFX, Sandor is also head of Environmental Financial Products, a Chicago firm that advises companies on emissions-trading issues.