The Australian Securities and Investment Commission (ASIC) and Reserve Bank of Australia (RBA) have jointly welcomed the publication of new guidelines for the setting of the local interest rate benchmark, the Bank Bill Swap Rate (BBSW).
Local exchange group ASX took over from AFMA (Australian Financial Markets Association) as administrator of the BBSW in January 2017 and today has published Trade and Trade Reporting Guidelines to help create the new benchmark.
A major concern over recent years has been the low trading volumes during the rate set window, the time of day that BBSW is measured. In response, the BBSW methodology is being strengthened to enable the benchmark to be calculated directly from a wider set of market transactions. ASX has been consulting market participants on this new methodology with the “strong support” of ASIC and the RBA.
The new methodology, an additional step has been included in the calculation process – the inclusion of trades executed on a bilateral basis or over approved trading venues during the specified window. These trades have to be reported to ASX as the administrator of the fix, to be part of a VWAP (volume weighted average price) calculation. “The approach places an emphasis on trade activity and will ensure that BBSW remains a trusted, reliable and robust financial benchmark,” ASX says.
ASX says it is also introducing a rolling maturity window to allow trades within five days maturity of the straight run to be included in the calculation.
The new methodology will be phased in starting on December 4, 2017 and continuing through early 2018, ASX says.
“We believe the ASX BBSW Guidelines will support the market’s trust in the robustness and reliability of BBSW, as the market makes the transition to the new BBSW methodology based on trading in the rate set window,” says ASIC commissioner Cathie Armour. “Importantly, the ASX BBSW Guidelines recognise that trades in bank bills should not be done for a purpose of seeking to influence the level at which BBSW is set or maintained.
“The Government recently introduced legislation to implement financial benchmark regulatory reform and ASIC has consulted on proposed financial benchmark rules,” she continues. “We have worked with the ASX and are confident that the ASX BBSW Guidelines will meet the requirements under Australia’s proposed regime, including the proposed ASIC rules.”
ASIC and the RBA say they expect all bank bill market participants – including the banks that issue the bank bills, as well as the participants that buy them – to adhere to the ASX BBSW Guidelines and support the new BBSW methodology. “The rate set window should be the most liquid part of the day in the bank bills market, and market participants are likely to get the best outcomes for their institutions and their clients by trading during this period,” they say.