ASX has finalised the BBSW Trade and Trade Reporting Guidelines (BBSW Guidelines) which have been developed to support changes to the BBSW calculation methodology. The new methodology will be implemented in early 2018.

Background

As Benchmark Administrator, ASX has responsibility for the development of the BBSW calculation methodology. ASX has developed a Volume Weighted Average Price (VWAP) methodology that uses actual transactions in the underlying Bank Accepted Bills (Bills) and Negotiable Certificates of Deposit (NCDs). The VWAP methodology will be an additional layer on top of the current calculation methodology and is designed to create a robust and reliable Benchmark.

The VWAP methodology was based on recommendations from the Council of Financial Regulators (CFR) in its discussion paper titled Evolution of the BBSW Methodology (9 February 2016) and is consistent with IOSCO Principles for Financial Benchmarks.

Why is ASX publishing the BBSW Guidelines?

ASX, in consultation with regulators and participants active in the underlying market, has developed the BBSW Guidelines in response to a number of factors:

1. Request for clarity from participants on market practices to be followed when trading Bills and NCDs at an outright negotiated rate;

2. To define trade reporting requirements for the purpose of calculating a VWAP rate based on actual transactions; and

3. To meet regulatory requirements of Benchmark Administrators following amendments to the Corporations Act as well as the new ASIC Financial Benchmark Rules (anticipated to come into effect in early 2018).

Who do the Guidelines apply to?

The BBSW Guidelines are intended to apply to all market participants involved in the issuing and trading of Bank Paper, and reporting trades that could be used by the Administrator to calculate BBSW.

Market participants include Banks, investors and other entities who participate in the interbank and wholesale market for Prime Bank issuance of Bills and NCDs.

When are the BBSW Guidelines effective?

Given feedback from market participants on the extent of change required, ASX will be taking a phased approach to the implementation of the new methodology and BBSW Guidelines.

Phase 1:  4^th December 2017

Sections 2 and 3 of the Guidelines, to the extent they pertain to long standing trading practices (listed below), will come into effect:

• The early/late maturity convention will be replaced with a rolling maturity pool (+/- 5 business days either side of the straight run maturity date);

• The NBBO sample period will be brought forward to 9:44-9:46am from 9:59-10:01am;

• Market participants will be required to quote and trade at an outright rate and will no longer be able to request to trade at BBSW (section 3.4 of the guidelines); and

• Market participants should not delay trading bank paper for the purpose of avoiding trading in the Rate Set Window (section 3.2 of the guidelines).

During phase 1, BBSW will continue to be published each day at 10:15am.

Phase 2:  Early 2018

The remaining sections of the Guidelines which cover trade reporting activities with respect to the VWAP calculation (sections 4-8), will come into effect in early 2018.

ASX and market participants will undergo a period of industry wide testing prior to the implementation date during which time market participants will be required to submit trade reports in accordance with the BBSW Guidelines. Trade reports submitted during this period will be used by ASX to calculate VWAP BBSW rates but will not be used in the daily publication of BBSW. ASX will publish the results of the industry wide test on its website (1 week in arrears).

Under the VWAP methodology BBSW will be published each day at 10:30am.

ASX will issue a market notice in January 2018 confirming the effective date for trade reporting (as part of the industry wide test) and the go live date for the VWAP methodology.

What do I need to do by when?

Participants active in the Bills and NCD market should read the BBSW Guidelines and circulate within the relevant internal departments to ensure compliance and readiness ahead of the industry wide test in late Q1 2018.

Need more information?

Issued by

Monique Bell, Manager, ASX Benchmarks

Contact information

Monique Bell
+61 (02)  9227 0208
monique.bell@asx.com.au 

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