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    HKMA Publishes Update on Reform of Interest Rate Benchmarks

    October 23, 2019

    HKMA published a circular on the latest developments related to the reform of interest rate benchmarks. The circular also sets out the steps that HKMA plans to take to monitor the progress of authorized institutions in preparing for the transition from interbank offered rates (IBORs) to alternative reference rates. HKMA observes that many authorized institutions have made progress in preparing for the transition to alternative reference rates. To monitor the development, HKMA will soon conduct a regular survey to collect information on authorized institutions’ exposures referencing IBORs and the progress of their preparatory work for the transition. HKMA will take suitable follow-up actions based on insights from the survey of individual institutions.

    Authorized institutions are expected to keep abreast of both international and local developments of the benchmark reform and take them into account in their preparation for the transition. Locally, the Treasury Markets Association (TMA) has identified the Hong Kong Dollar Overnight Index Average (HONIA) as the alternative reference rate to the Hong Kong Interbank Offered Rate (HIBOR); however, there is no plan to discontinue HIBOR. The TMA has completed a public consultation on some technical refinements to HONIA and will release the results in due course. The Working Group on Alternative Reference Rates formed under the TMA has convened regular meetings to discuss issues arising from the reform, with a view to help local market participants prepare for the possible discontinuation of LIBOR and to facilitate the adoption of HONIA by market participants. The circular notes that international authorities, standard-setting bodies, and industry organizations have made significant progress in laying down critical elements for the transition. These include the:

    • Ongoing developments of term rates for alternative reference rates and spread adjustments that can be applied to the alternative reference rates to address the differences between alternative reference rates and IBORs
    • Standard documentation for loans and debt securities with floating rates linked to alternative reference rates
    • Fallback languages that can be adopted in financial contracts referencing IBORs to cater for the scenario of IBOR discontinuation

    Keywords: Asia Pacific, Hong Kong, Banking, Securities, Interest Rate Benchmarks, IBORs, LIBOR, Reference Rates, HONIA, HIBOR, HKMA

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