* New method for calculating key interest rates
* Opening quotes to be calculated by call auction
* Trial to begin overnight and 7-day repo rates
* Repo rates used as benchmark for broader bond mkt
By Xize Kang and Gabriel Wildau
BEIJING/SHANGHAI, March 25 The regulator for
China's interbank money market will change the way it calculates
the opening price for two benchmark interest rates, sources told
Reuters on Tuesday, in a bid to reduce the ability of individual
banks to manipulate key rates.
The National Interbank Funding Center, which is controlled
by the central bank, will use a new method to calculate the
opening quote for the overnight and seven-day
bond repurchase rates, four sources told Reuters.
These rates, which measure the cost that banks charge for
lending to each other, are considered key benchmarks for
domestic liquidity conditions. The plan could eventually be
expanded to include other tenors, the sources said.
Rather than simply publishing the rate for the first trade,
the center will use the so-called "call auction" method to
calculate the official opening rate, which often serves as a key
reference for pricing in the broader bond market.
The center will seek quotes between 9:00 and 9:25 AM local
time each day from a group of 50 banks of various sizes in order
to determine the opening price.
The new system will be introduced soon, according to the
sources, but they could not specify a date. The National
Interbank Funding Center did not immediately answer calls
The call auction method is also used by stock exchanges
around the world to calculate the official opening price of
stock indexes. The method involves averaging price quotes from
multiple market participants, rather than a single bilateral
"In order to raise the efficiency of counterparty matching
and exhibit fairness, the minimum amount for a single
transaction (to be counted in the opening price) is 100 million
yuan ($16 million), and the largest is 500 million," a source
with direct knowledge of the plan told Reuters.
"A single institution will be able to quote no more than
five transactions for a single call auction product," the source
Market participants say regulators are concerned that
individual banks may be able to manipulate the opening quote for
key money-market interest rates, which are often used as a
reference for pricing bonds, interest-rate swaps, and other
fixed income products.
($1 = 6.1888 Chinese Yuan)
(Editing by Simon Cameron-Moore)