Quote from: noggin-scratcher on November 19, 2014, 10:27:47 AM

Quote from: mjr on November 19, 2014, 12:54:42 AM

Most people want something rather than nothing, and some posters even said, if the FRR wasn't there, I would just pick the lowest rate and do that. FRR is very similar to a market order, they don't request a specific return, and are basically willing to take whatever they get. I, personally, think that the FRR prob keeps rates higher, because they don't just go for the lowest possible.

I can see that being possible... my instinct would be that it would be far more volatile - higher when we're on a bull run, lower when we're not, and more prone to jump about all crazy-like.

You'd have a steady stream of auto-lenders taking random pot-shots at whatever's available from the swap requests (hopefully not all of them - some would just take anything above zero but surely at least some would wise up and start at least picking a rate to auto-renew at once a day... and some would probably just leave), and that regular slow-trickle dump would indeed weaken the incentive for traders to take offers when they can just wait for a lowball 'market' offer... which might actually make the 'requests' side of the book relevant (and thicker at sensible rates) rather than just a queue of hopefuls waiting for someone to dump almost-free funding on them.

But even while full-auto lenders chew through the swap requests, without that giant anchoring wall on the offer-side, it'd also be that much easier for a rush of traders in a hurry to chew through the offers up to ~0.7%, as we've seen when the wall goes down before. That's why I'm thinking it would erode both sides and leave the going rate more freely wandering. Might be overall higher or lower, who knows, but that might well be more representative of the true supply/demand.

I can see the value in the FRR as a place to put all the lazy money so it can be stored up safely rather than unleashed all at once onto an unprepared set of 'requests', but I do still wish the wall would move when people start taking it; respond to the apparent demand by moving rates up a li'l bit to test whether there's still demand at that higher rate, then move back down if there isn't. I'm just going to keep saying that until either you're sick of hearing it or you become convinced.

I totally agree with you. That is exactly what we are trying to accomplish. Right now, we are testing an exponential weighted average, so that the most recent active swaps will count a lot more towards the next FRR than the one from an hour ago. This should make it more sensitive, and allow it to wander more freely. Ideally, instead of a stairway, it should hopefully be more like a slope.

It is kind of a big change, and it is something that has pretty far reaching effects, which is why we are being cautious.