BNM Proposes Strategic Direction for KLIBOR and KLIRR
BNM published a discussion paper that sets out proposed design and features for the development of an alternative reference rate, potential enhancements to the Kuala Lumpur Interbank Offered Rate (KLIBOR), IBOR fallback language, and a review of the Kuala Lumpur Islamic Reference Rate (KLIRR). BNM, in consultation with the Financial Markets Committee, is conducting a comprehensive review on the continuity of KLIRR and a potential alternative Islamic reference rate that adheres to the global standards for financial benchmarks. The comment period for this discussion paper ends on June 18, 2021.
BNM currently compiles and publishes the Average Overnight Interbank Rate (AOIR), which is a near risk-free weighted average overnight interbank funding rate that considers the BNM's monetary operations and interbank transactions based solely on transaction data, consistent with the development of major alternative reference rates of major currencies worldwide. Taking into consideration the characteristics of the current AOIR, the Financial Markets Committee identified AOIR as the ARR. Financial Markets Committee also proposed some technical refinements to the AOIR to enhance its robustness and representativeness. The refined AOIR is proposed to be renamed as the Malaysia Overnight Rate (MYOR), with the following proposed features:
- Calculation methodology. MYOR will be calculated as the volume-weighted average rate of unsecured overnight MYR interbank transactions.
- Data source. MYOR will capture all eligible transactions sourced from the Real-time Electronic Transfer of Funds and Securities System (RENTAS).
- Data collection window. All eligible transactions settled via RENTAS throughout the entire business day will be included in the MYOR calculation
- Publication time. To capture all eligible transactions settled on the same day, the Financial Markets Committee proposes for the publication time of the next business day. This proposed change is in line with the international practices for publication of rates such as the Secured Overnight Financing Rate (SOFR) and the Sterling Overnight Index Average (SONIA), which are published on the following business day.
- Erroneous data. A re-publication shall be made if the error is more than two basis points away from the correct rate and is identified or reported by 2.00 pm on publication day. The re-publication will be made by 4.0 0pm on the same day. If findings or reports of erroneous calculations are made after the cut-off time, no republication will be made.
- Contingency arrangements. As a backstop in the event of disruption to the normal production of MYOR, BNM shall, at its discretion, publish MYOR using a simple average of MYOR over the previous three publication days. For exceptional circumstances, BNM reserves the right to determine the appropriate contingency rate.
With respect to refinements to KLIBOR, the Financial Markets Committee proposes to adopt a phased approach to potentially discontinue rate submissions for the least referenced tenors to ensure the integrity of KLIBOR rates and facilitate transition. In this regard, the two-month and twelve-month tenors will be discontinued first, followed by the six-month tenor. The Financial Markets Committee proposes that market participants are given an advance notice of 12 months in the event that certain KLIBOR tenors are discontinued upon review.
Related Links
Comment Due Date: June 18, 2021
Keywords: Asia Pacific, Malaysia, Banking, Securities, KLIBOR, Alternative Reference Rates, ARR, KLIRR, Interest Rate Benchmarks, Benchmarks Reforms, BNM
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.