The Bank of Canada said it’s taking over a new enhanced risk-free overnight rate, and the benchmark could become dominant in the country’s US$12 trillion market for loans and derivatives.

The Ottawa-based central bank said Tuesday it will become the administrator of the Canadian Overnight Repo Rate Average, which is based on repo transactions, when enhancements take effect in the second quarter next year.

Refinitiv Benchmarks Services currently oversees the major Canadian benchmarks, including Corra and the Canadian Dollar Offered Rate, or CDOR.

“The private sector has been really motivated in helping this transition, there is a common objective to see this move happen,” Bank of Canada Deputy Governor Lynn Patterson said in a briefing to reporters. “Having the central bank being the administrator helps with the transition process as it adds a level of robustness.”

Regulators and market participants around the world are pushing ahead with plans to develop their own domestic funding- rate alternatives, as the scandal-tainted London interbank offered rate is phased out by the end of 2021.

The Canadian dollar Libor rate was discontinued in 2013 in the aftermath of the rigging scandal surrounding the London interbank benchmarks.

CDOR has come under increased scrutiny in recent years amid allegations of collusion among Canadian and foreign banks.

The U.S. created an alternative benchmark called the Secured Overnight Financing Rate that is already generating US$800 billion in daily transactions.

A US$350 trillion market of loans and derivatives is tied to Libor. In Canada, the central bank set up a working group in to determine whether Corra needed enhancements, or whether a separate benchmark needed to be created.

While the central bank expects Corra to be further adopted across a wide range of financial products, eventually becoming the main rate in Canada, this transition may take a number of years, Patterson said.

Andrew Kelvin, a strategist at TD Securities, said in a note in May he expects CDOR to remain the “dominant” reference benchmark, since almost 90 per cent of financial instruments referencing a floating rate rely on one-month or three-month CDOR.

The Canadian Alternative Reference Rate Working Group will work to ensure the timeline for the implementation on the enhanced rate. It will also form a new subgroup to develop a publishing process for Corra and its governance structure, including regular reviews of the methodology.

Corra has been published since 1997. It is currently calculated using overnight repo market transactions and is referenced in more than US$1 trillion in financial instruments.

The enhanced methodology calls for transactions including repurchase transactions that are conducted between two unaffiliated counterparties.

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