Update on IBOR rates transition and 1M BBSW alternatives

The ASF has been collaborating with AFMA on the strengths and weaknesses of 1M BBSW as a long-term interest rate benchmark having formed a collaborative working group between ASF, AFMA, APLMA and FTA.  

In addition, the ASF through its own benchmark reform working group established in late 2018 is also making its own progress on standardising the definition of 1m BBSW used in securitisation documentation so it reflects current ASX calculation methodology.  

This is accompanied by generic risk disclosure language for offering documents highlighting benchmark transition as a potential risk for noteholders.  

Finally, the working group is aiming to recommend to the market more robust temporary and permanent fallback language for new issues.  

We expect these standardised templates to be finalised by the working group in the next two weeks following which they will be posted to the ASF’s website and socialised more widely among the membership for comment.

The second key initiative of the ASF is to start planning for a formal industry market consultation in Q3 to seek public feedback and input from market participants on the benefits and risks of alternate benchmarks such as 3M BBSW (for a shorter period) and/or a compounding backward looking rate such as AONIA and how that would work for floating rate coupons paid on asset backed securities. 

The ASF is looking to engage a consultant who has familiarity with both global and domestic developments on floating rate benchmark reform and risk free alternative rates.  The consultant will assist the ASF working group by compiling industry responses and views and preparing a detailed report for discussion with the market and regulators.

The ASF is also liaising with SFIG and other industry groups around transition away from LIBOR.  The experience of LIBOR can be distinguished from the use of BBSW for cash products due to the underlying fixed (US) vs. floating (Aust) rate nature of deals.

Please contact Robert Gallimore if you would like further information. 

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