The Australian Financial Markets Association in a notice this morning has said that it will no longer administer the process to set the BBSW bank bill swap rate. BBSW is the number one bechmark for AUD loans and bonds.
"AFMA has determined that benchmark administration has now evolved to a point where it is appropriate for it as an industry body to step away from the function of being a benchmark administrator."
"This will provide AFMA with greater capacity to conduct the policy advocacy and market development activities that form the core of its mission."
What will happens next?
The process to find a new administrator has not yet started. It will therefore take time, at least a year, before there is a handover of sorts.
Like with LIBOR it is likely that a number of exchanges, clearing houses and financial data collection firms will want to bid. And like with LIBOR this may result in further reform.
What is BBSW?
The AFMA BBSW rate is the mid-rate of the market for AFMA Prime Eligible Securities that have a remaining maturity of between one and six months.
The process is more or less automated extracting live and executable bids and offers from various electronic trading platforms at 10am every trading day.
The rate is calculated using a process referred to as the National Best Bid and National Best Offer (or “NBBO”).
Prime Eligible Securities include bank accepted bills (BABs) and negotiable certificates of deposit (NCDs) issued by banks that, having met the eligibility criteria and conditions, are designated AFMA ‘Prime Banks’.
Use this BBSW Guide to read more detail about the current rate setting process.