* Australia's BBSW rates to be set directly from trading
* Citi, HSBC join JP Morgan, UBS in exodus from BBSW panel
* BBSW, based on actual trades, seen less prone to
manipulation than Libor
* New Zealand loses BKBM rate contributors, reviewing
By Lincoln Feast
SYDNEY, March 28 Australia is scrapping the
panel that sets its interbank lending rates after an exodus of
banks from the panel, the first major market to dismantle the
tarnished structure in the wake of the Libor rate-rigging
Australia instead plans to base its reference rates on
actual market transactions, in line with recommendations earlier
this month by a group of global central bankers, and could set
the pace for moves in other markets.
Regulators are seeking to reform rate-setting practices
after Barclays Plc, UBS AG and Royal Bank of
Scotland Group Plc were hit with fines totalling
billions of dollars for rigging 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," the association 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."
Banks around the world are reviewing their involvement in
interest rate-setting panels in the aftermath of the Libor
scandal, which was sparked by findings on manipulation of rates
used to price home loans, credit cards and other financial
products worth trillions of dollars.
While British regulators have stopped rate fixings on some
less-used currencies and tenors, this would mark the first time
the panel for a market's main interbank lending benchmark has
AFMA said HSBC and Citibank were pulling out
of the BBSW panel, joining the departures of JP Morgan Chase &
Co and UBS announced earlier this year.
JP Morgan, Citi and HSBC are also withdrawing from the panel
on the New Zealand equivalent, the head of the New
Zealand Financial Markets Association, Paul Atmore, said.
Atmore told Reuters that the association was reviewing its
rate setting process, which uses bank contributions based on
trades made in a daily two-minute trading window and would look
at pricing rates directly from the market.
Australia's BBSW rates had been viewed as a more
transparent model than the widely used Libor for setting
While banks submit self-determined estimates of their
borrowing and lending costs to calculate Libor, the BBSW rates,
with tenors ranging from one to six months, are based on where
the paper is actually 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
The Bank for International Settlements this month called for
greater use of actual transaction data to produce a range of
reference interest rates for different purposes.
While scrapping the Australia panel will link reference
rates more directly to actual market rates, some market
participants voiced concern that they could still be manipulated
by banks entering the cash market with big orders before the
UBS's withdrawal from the BBSW panel follows the publication
of a U.S. Commodity Futures Trading Commission report into its
manipulation of Libor and the Japanese yen equivalent.
The CFTC findings also noted evidence of attempted
manipulation by UBS traders in the BBSW, among other rates.
UBS has declined to comment on its findings.