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
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.