RBNZ is supporting the selection of the Official Cash Rate (OCR) as the fallback benchmark interest rate in New Zealand. The New Zealand Financial Markets Association (NZFMA) has made changes to further improve reliability and robustness of the benchmark, in line with developments in the global best practices. As a part of these improvements, NZFMA, in conjunction with consultation from industry representatives, selected the OCR to act as the risk-free fallback benchmark interest rate for BKBM, which is benchmark interest rate of New Zealand. The new risk-free interest-rate benchmarks will be calculated independently to the BKBM fallback benchmark rate, with the NZFMA in the process of developing a term structure methodology.
In the first quarter of 2020, ISDA is expected to update its 2006 fallback provisions. Following this, it would be prudent for market participants to adopt them in contracts that reference the BKBM. ISDA will also publish a protocol to enable market participants to include fallback benchmark rates within legacy inter-bank offered rate trades, if they choose to. ISDA appointed Bloomberg Index Services to calculate and publish the term rate adjustment (using compounded setting in arrears) and credit spread adjustment (using a historical median) for the fallback benchmark rate, should it be needed. Furthermore, NZFMA advised that it intends to operate dual interest rate benchmarks, retaining BKBM and developing risk-free rates.
Internationally, it is widely recognized that the London Inter-bank Offered Rate, or LIBOR, will no longer be calculated and published beyond 2021. Market participants in New Zealand with contracts referencing LIBOR should continue to prepare for this by transitioning to the alternative benchmark rates and by adopting more robust fallback provisions in their contracts. While some banks have made good progress, market participants need to accelerate efforts to ensure they are prepared for LIBOR cessation by the end of 2021.
Related Link: Press Release
Keywords: Asia Pacific, New Zealand, Banking, LIBOR, IBOR, Fallback Provisions, NZFMA, Interest Rate Benchmark, OCR, BKBM, RBNZ
Previous ArticleIASB Consults on Approach to Update the IFRS for SMEs Standard
US Agencies (FDIC, FED, and OCC) finalized two rules, which are either identical or substantially similar to the interim final rules in effect and issued earlier this year.
EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings.
APRA announced that it is resuming consultation on the confidentiality of data submitted to APRA by the authorized deposit-taking institutions.
BoE and FCA are supporting and encouraging liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA, instead of LIBOR, from October 27, 2020.
Deutsche Bundesbank published special schema files for securities holdings statistics (SHS), along with a document on the XML format description.
EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).
ESMA announced that it will recognize three central counterparties (CCPs) established in the UK as third-country CCPs, from January 01, 2021.
PRA published Version 02.04 of the PRA110 liquidity metric monitoring tool (PRA110 LMM tool).
FSB confirmed the Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System (GLEIS) as the International Governance Body for the globally harmonized identifiers used to track over-the-counter (OTC) derivatives transactions, with effect from October 01, 2020.
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.