Giu 292018

The Governing Council of the European Central Bank (ECB) has decided on the final methodology for calculating the Euro Short-Term Rate (ESTER) – an overnight unsecured rate based entirely on money market statistical reporting (MMSR), which will start to be published by October 2019. We report here the main features of ESTER computation; the complete methodology can be found on the ECB website (see link below).

ESTER is exclusively based on borrowing transactions in euro conducted with financial counterparties that banks report in accordance with EU Regulation (MMSR Regulation)

ESTER is calculated using overnight unsecured fixed rate deposit transactions over €1 million. Unsecured deposits are standardised and are the most frequent means of conducting arm’s length transactions on the basis of a competitive
procedure, thereby limiting idiosyncratic factors potentially influencing the volatility of the rate.

ESTER is calculated for each TARGET2 day as a volume-weighted trimmed mean rounded to the third decimal. The volume-weighted trimmed mean is calculated by:

  1. ordering transactions from the lowest rate to the highest rate;
  2. aggregating the transactions occurring at each rate level;
  3. removing the top and bottom 25% in volume terms; and
  4. calculating the mean of the remaining 50% of the volume-weighted distribution of rates

A pro rata calculation is applied to volumes that span the thresholds for trimming to ensure that exactly 50% of the total eligible volume is used in the calculation of the volume-weighted mean.

The ECB publishes ESTER with three decimal places no later than 09:00 CET on the next TARGET2 business day. Together with ESTER, the following related information is published:

  • total nominal value of transactions before trimming in EUR millions;
  • number of banks reporting transactions before trimming;
  • number of transactions before trimming;
  • percentage of total nominal amount reported by the five largest contributing banks that day, as a whole number;
  • calculation method: normal or contingency;
  • rates at the 25th and 75th percentiles with two decimal places.

ECB: ESTER Methodology (PDF)


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