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New BBSW benchmark

Friday 1 June 2018

Last week, the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) both welcomed the new method of calculating the Bank Bill Swap rate (BBSW).

This announcement came at the same time the corporate regulator failed to prove Westpac manipulated the BBSW. Westpac was found to have acted unconscionably; however, its actions were not considered to have amounted to market manipulation.

The Australian Financial Review reported that this case was launched after the other members of the ‘big four’ settled with the corporate regulator in 2016—an amount which totalled $125 million.

The court’s decision will likely result in a fine for Westpac of up to $3.3 million.

According to the official communication from the regulator:
The new BBSW methodology calculates the benchmark directly from market transactions during a longer rate-set window and involves a larger number of participants.

This new method will prop the benchmark to real transactions at ‘traded prices’, and has been tested by the Australian Securities Exchange (ASX) against the existing system in response to concern around the low transactions volume during the existing rate-window.

“ASIC and the RBA expect all bank bill market participants—including the banks that issue the bank bills, as well as the participants that buy them—to adhere to the ASX BBSW Guidelines and support the new BBSW methodology. The rate-set window is the most liquid period in the bank bills market, and market participants are therefore likely to get the best outcomes for their institutions and their clients by trading during this time,” ASIC commissioner Cathie Amour said.

The regulator indicated that this change is consistent with approaches in other jurisdictions.

Businesses can expect the corporate regulator to publish financial bench-marking rules.

“We expect market participants to put in place procedures so that as much trading as possible happens during the rate-set window.”