World Economy

Australia Plans New Interbank Rate-Setting Scheme

Australia Plans New Interbank Rate-Setting SchemeAustralia Plans New Interbank Rate-Setting Scheme

Australia will move to a new process by the end of this year for setting its credit market reference rate, even as the corporate regulator reportedly prepares to launch its first civil action for attempted rate rigging.

The changes, contained in a discussion paper from the Council of Financial Regulators, are intended to minimize the risk of manipulation facing Australia’s BBSW bank bill swap rate, which sets the price of money market funds, Reuters reported.

The CFR is a consortium of the Australian Securities and Investments Commission, the Australian Prudential and Regulatory Authority and the Reserve Bank of Australia.

Global regulators have been reforming rate-setting practices after Barclays Plc, UBS AG, RBS and others were fined billions of dollars for rigging the globally used London Interbank Offered Rate, known as Libor.

Australia overhauled its BBSW rate-setting mechanism in 2013 after an exodus of banks from its panel of participating money market institutions.

It replaced the panel of 14 banks with an automated rate setting mechanism that examines live and executable prices achieved for bank accepted bills and negotiable certificates of deposit from trading venues.

ASIC has said it is investigating Australia and New Zealand Banking Group over rate rigging.

The Australian Financial Review reported at the weekend that a court action was expected to be filed “within weeks.”

Greg Medcraft, chairman of ASIC, said the regulator had up to A$80 million set aside for fighting complex legal battles of this type.

The CFR has backed a new benchmark methodology based on the volume-weighted average price of traded bank bills and certificates of deposit.

The new benchmark will be determined over a longer trading period than the existing model which is based on the national best bid and offer rate seen during the 10am fix period.

The CFR said the BBSW benchmark was “systemically important” given its role in pricing a range of financial instruments, but it was concerned that for one in every three days there was no suitable trading activity at the time BBSW was set.