Press Release ~ Report on the Review of Hong Kong Interbank Offered Rate

Press release

Report on the Review of Hong Kong Interbank Offered Rate

In July 2012, the HKAB initiated a review of HIBOR which is an important financial market benchmark for Hong Kong, in view of worldwide interest in the robustness of benchmark fixings in global financial markets following the developments of London Interbank Offered Rate (LIBOR).  Commissioned by the HKAB, the TMA established a Working Group (TMA WG) to undertake a study.  The TMA hopes that this report, a product of the hard work of all the members of the working group over the past five months, will contribute to the review work of the HKAB. 

The TMA WG concludes that the HIBOR fixing mechanism remains sound.  Worth highlighting is the fact that, unlike LIBOR, reference banks for HIBOR are asked to estimate the funding costs of prime banks in Hong Kong, hence there is substantially less concern about the stigma effect of banks’ submissions in distressed market situations which may create an incentive for banks to under-report the rates in such circumstances.  Back-testing results also suggest that HIBOR fixings have performed well in representing the funding cost of prime banks.

• Providing clear rate submission guidance to reference banks which are contributing rates for the fixing process;
• Developing a code of conduct which encompasses the rate submission guidance and the sound practices on systems of control that reference banks should put in place.  This code of conduct should be subject to endorsement by the HKMA;
• The HKAB to consider entrusting the administrator role for HIBOR to a third party so as to enhance independence of the rate fixing process;
• Confining fixings to only tenors that have strong market demand, including overnight, 1-week, 1-month, 2-month, 3-month, 6-month and 12-month; and
• Reviewing and enhancing provisions in contracts that reference HIBOR.