Mechanism to arrive at forex & interest rate benchmarks to boost transparency: Experts

Apr 18 2014, 03:42 IST
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SummaryThe RBI’s move to implement a governance and methodology structure to fix benchmarks for forex and the interest rate market will bring about more transparency and discipline, market participants said.

The RBI’s move to implement a governance and methodology structure to fix benchmarks for forex and the interest rate market will bring about more transparency and discipline, market participants said.

On Wednesday, the RBI said it had accepted the recommendations of an internal committee under the chairmanship of executive director Vijay Bhaskar and would implement them soon.

The committee has recommended that the Fixed Income Money Markets Development Authority (FIMMDA) and the Foreign Exchange Dealers Association of India (FEDAI) jointly or seperately form an independent body for monitoring the benchmarks.

“It is structured and robust, so the chances of errors or chances of stale benchmarks and valuations will come down. So, it is more reliable now,” said Ananth Narayan G, head of global markets at Standard Chartered Bank.

FIMMDA and FEDAI may select the benchmark submitters from the market based on their standing and market share, RBI said. The administrators will have to specify a code of conduct for the benchmark submitters.

Banks and other market participants must have a board-approved policy on governance of the submission process, RBI said.

“Many of the recommendations are not new as such. But the fact that the regulator has laid them down will now make the system of benchmarks more robust,” said a treasury official at a public sector bank.

Market participants must also put in place a maker-checker system wherein the accuracy and integrity of the submissions are ensured. Also, the central bank has asked banks to have internal controls to ensure compliance with the procedures.

Financial benchmarks are used by banks and other market participants to periodically review pricing of rupee assets and for settling of interest rate and forex derivatives. Some of the benchmarks include the Mumbai Interbank Offered Rate (MIBOR), Mumbai Interbank Forward Offered Rate (MIFOR) and the RBI reference rate for key foreign exchange currency pairs.

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