AFMA to give up BBSW

Post Date: 11/05/2016

What happened?
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.