Reuters: Regulatory News: UPDATE 1-Australia to end interbank rate-setting panel after Libor scandal

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UPDATE 1-Australia to end interbank rate-setting panel after Libor scandal Mar 28th 2013, 01:37 Wed Mar 27, 2013 9:37pm EDT * Australia's BBSW rates to be set directly from trading venues * Citi, HSBC join JP Morgan, UBS in exodus from BBSW panel * BBSW, based on actual trades, seen less prone to manipulation than Libor By Lincoln Feast SYDNEY, March 28 (Reuters) - Australia is scrapping the panel that sets interbank lending rates after an exodus of the banks from the panel, the first major market to dismantle the tarnished structure in the wake of the Libor rate-rigging scandal. Banks around the world are reviewing their involvement in interest-rate setting panels after regulators dished out billions of dollars in fines to banks, including Barclays Plc , UBS AG and Royal Bank of Scotland Group Plc , for manipulating the London Interbank Offered Rate, known as Libor. The Australian Financial Markets Association (AFMA), which administers Australia's bank bill swap (BBSW) reference rate, said it planned to bypass the panel and derive the rates directly from brokers and electronic markets. "An advantage of this enhancement is that it will remove the need for a BBSW Panel, which will eliminate the associated compliance and ancillary costs which otherwise exist for panellist banks," AFMA said in a statement issued late on Wednesday. "This change is subject to technical requirements being satisfied, but it is hoped that this solution will be achievable within a period of months." AFMA said HSBC and Citibank were pulling out of the BBSW panel, joining the departures of JP Morgan Chase & Co and UBS, which announced plans to leave the panel earlier this year. BANKS PULL OUT UBS pulled out following the publication of a U.S. Commodity Futures Trading Commission report into its manipulation of Libor and the Japanese yen equivalent. The CFTC findings, reported by Reuters in January, noted evidence of attempted manipulation by UBS traders in the BBSW, among others. "Through its internal investigation, UBS identified evidence of similar misconduct involving submissions for at least the Hong Kong Interbank Offered Rate ("HIBOR"), the Singapore Interbank Offered Rate ("SIBOR"), the Singapore Swap Offer Rate ("SOR") and the Australian Bank Bill Swap Rate ("BBSW")," a footnote in the CFTC charge sheet read. BBSW had been viewed as a stronger model than Libor, albeit still imperfect, for setting interbank rates, which form the basis of trillions of dollars worth of bonds, loans and derivatives. While banks submit self-determined estimates of their borrowing and lending costs to calculate Libor, the BBSW rates are based on where the paper is trading in the market. Submissions to the BBSW process report the prevailing prices for a single type of clearly defined and homogeneously traded paper from Australia's four "prime banks" - Australia and New Zealand Banking Group, Westpac Banking Corp, National Australia Bank and Commonwealth Bank of Australia. The rates are observed by up to 14 panelists, with the six middle submissions setting the rate. With the exit of HSBC and Citi, the panel will drop to 10 members from the end of March. While British regulators have stopped rate fixings on some less-used currencies and tenors, this would be the first time the panel for a market's main interbank lending benchmark has been disbanded. AFMA said market participants supported the proposed changes. Mark Todd, Director, Fixed Income Sales at FIIG Securities, said the decision to dismantle the panel was not surprising given banks' stated desire to mitigate risks around rate setting. Link this Share this Digg this Email Reprints

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