ob体育 and the Reserve Bank of Australia (RBA) have welcomed the new BBSW calculation methodology, which commenced today.
The bank bill swap rate (BBSW) is a major interest rate benchmark for the Australian dollar and is widely referenced in many financial contracts. Previously, BBSW was calculated from the best executable bids and offers for Prime Bank securities. A major concern over recent years has been the low trading volumes during the rate-set window, the period over which the BBSW is measured.
The new BBSW methodology calculates the benchmark directly from market transactions during a longer rate-set window and involves a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices. ASX, the administrator of BBSW, has consulted market participants on this new methodology. In addition, the ASX has recently conducted a successful parallel run of the new methodology against the existing method.
RBA Deputy Governor Guy Debelle said, 鈥楾he new methodology strengthens BBSW by anchoring the benchmark to a greater number of transactions. This should help to ensure that BBSW remains robust.鈥�
ob体育 Commissioner Cathie Armour said, 鈥楢 transaction-based BBSW supports the market鈥檚 trust in the robustness and reliability of BBSW.鈥�
鈥榦b体育 and the RBA expect all bank bill market participants 鈥� including the banks that issue the bank bills, as well as the participants that buy them 鈥� to adhere to the ASX BBSW Guidelines and support the new BBSW methodology. The rate-set window is the most liquid period in the bank bills market, and market participants are therefore likely to get the best outcomes for their institutions and their clients by trading during this time.鈥�
鈥榃e expect market participants to put in place procedures so that as much trading as possible happens during the rate-set window.鈥�
This change follows passage through the Parliament in March of legislation that puts in place a framework for licensing benchmark administrators. Consistent with the approach taken in a number of other jurisdictions, it also made manipulation of any financial benchmark, or products used to determine such a benchmark, a specific offence and subject to civil and criminal penalties.
Following the passage of legislation, ob体育 intends shortly to make financial benchmark rules, on which ob体育 consulted in 2017. ob体育 also expects to declare BBSW, and a number of other financial benchmarks, as 鈥榮ignificant benchmarks鈥� in Australia and to license the administrators of those significant benchmarks.