The documentation guides RBNZ's step away from LIBOR and other IBORs
The Reserve Bank of New Zealand (RBNZ) has adhered to the December 2021 Benchmark Module of the ISDA 2021 Fallbacks Protocol as stipulated by the International Swaps and Derivatives Association (ISDA).
The new documentation will help ease the Reserve Bank’s transition from LIBORs to risk-free alternative rates, which was taken into effect in December.
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The Benchmark Module includes fallback arrangements for New Zealand’s main interest rate benchmark – the Bank Bill Benchmark Rate (BKBM) – used by market participants to calculate the amounts payable under several financial instruments. Meanwhile, the New Zealand Financial Markets Association (NZFMA) sets the BKBM each business day using transactions or executable bids and offers.
“The Reserve Bank welcomes the inclusion of BKBM in ISDA’s expanded fallback arrangements,” said Vanessa Rayner, head of financial markets at RBNZ. “We have worked closely with ISDA and the NZFMA to facilitate the expansion of the fallbacks.”
Other fallbacks for derivatives linked to key global interbank offered rates (IBORs) were also introduced as a safety net in case such a rate ceases to exist. Rayner said the Benchmark Module was a reminder for intermediaries, investors and borrowers who use BKBM to check if their documentations are in order to accommodate any new arrangements in the future.
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“As the Kaitiaki of New Zealand’s financial system, it is important to support the strengthening of our interest rate benchmarks,” Rayner said. “We also want to acknowledge the work that financial market participants have undertaken to prepare for significant changes to global interest rate benchmarks.”
The documentation was signed by the RBNZ back in October 2020 as part of its efforts to step away from LIBOR and other IBORs at the end of 2021. In addition, the new version covers a range of benchmark rates not originally covered in the ISDA 2020 IBOR Fallbacks Protocol, such as IBORs in New Zealand (BKBM), Norway (NIBOR), India (MIFOR), the Philippines (PHIREF), Malaysia (KLIBOR) and Sweden (STIBOR).
The December 2021 Benchmark Module can be found here.
