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FBIL-Overnight MIBOR

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FBIL Overnight Mumbai Interbank Outright Rate’ (commonly called as '''FBIL-Overnight MIBOR''' (Mumbai Inter-Bank Offer Rate))   is the new benchmark rate for unsecured loans of one day duration fixed by the Board of Financial Benchmarks India Pvt. Ltd (FBIL) based on the actual transactions in the inter-bank call money market. It reflects the short term funding costs to banks in India and indicates the rate at which banks in India borrow and lend money amongst themselves. The existing benchmark ie. MIBOR based on ‘polled rates’ administered by [http://www.fimmda.org/ Fixed Income Money Market and Derivative Association of India] (FIMMDA) and [http://www.nseindia.com/ National Stock Exchange] (NSE) has been replaced by  this  new Benchmark with effect from July 22,2015.  
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<p>FBIL Overnight Mumbai Interbank Outright Rate&rsquo; (commonly called as <strong>FBIL-Overnight MIBOR </strong>[http://www.arthapedia.in/index.php?title=MIBOR_and_MIBID (Mumbai Inter-Bank Offer Rate))] is the new benchmark rate for unsecured loans of one day duration fixed by the Board of Financial Benchmarks India Pvt. Ltd (FBIL) based on the actual transactions in the inter-bank call money market.  It reflects the short term funding costs to banks in India and indicates the rate at which banks in India borrow and lend money amongst themselves. The existing benchmark ie. MIBOR based on  &lsquo;polled rates&rsquo; administered by  [http://www.fimmda.org/ Fixed Income Money Market and Derivative Association of India] (FIMMDA) and [http://www.nseindia.com/ National Stock Exchange] (NSE) has been replaced by  this  new Benchmark with effect from July 22, 2015. </p>
 
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<p>FBIL overnight MIBOR is a financial benchmark and is mainly used for pricing, settlement, and valuation of financial contracts. The IOSCO&rsquo;s [https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf Report on Principles for Financial Benchmarks] describes financial benchmarks as:</p>
FBIL overnight MIBOR is a financial benchmark and is mainly used for pricing, settlement, and valuation of financial contracts. The IOSCO’s [https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf Report on Principles for Financial Benchmarks] describes financial benchmarks as:
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<p><em>&ldquo;Prices, estimates, rates, indices or values that are:</em></p>
 
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<ul>
“Prices, estimates, rates, indices or values that are:
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  <li><em>Made available to users, whether free of charge or for payment;</em></li>
 
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  <li><em>Calculated periodically, entirely or partially by the application of a formula or another method of calculation to, or an assessment of the value of one or more underlying Interests;</em></li>
a) Made available to users, whether free of charge or for payment;
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  <li><em>Used for reference for purposes that includes one or more of the following:</em></li>
 
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  <li style="margin-left:20px;"><em>determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments;</em><em>&nbsp;</em></li>
b) Calculated periodically, entirely or partially by the application of a formula or another method of calculation to, or an assessment of the value of one or more underlying Interests;
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  <li style="margin-left:20px;"><em>determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument; and/or</em><em>&nbsp;</em></li>
 
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  <li style="margin-left:20px;"><em> measuring the performance of a financial instrument.&rdquo;</em></li>
c) Used for reference for purposes that includes one or more of the following:
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</ul>
 
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<p><strong>Board  of Financial Benchmarks India Pvt. Ltd</strong> (FBIL) was jointly formed  by [http://www.fimmda.org/ Fixed Income Money Market  and Derivative Association of India] (FIMMDA), [http://www.fedai.org.in/ Foreign Exchange Dealers&rsquo;  Association of India] (FEDAI) and [http://www.iba.org.in/ Indian Banks&rsquo; Association] (IBA) on the basis of recommendations of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI  committee on &lsquo;Financial Benchmarking&rsquo;] (Chairperson: Shri P.Vijaya  Bhaskar), which recommended measures to improve the system of bench marking. This  was in the wake of developments involving misconduct of financial benchmark  setters in international financial markets (A few big banks were found to have fixed  the polled benchmark rates in order to benefit from derivative trades which are  settled on these benchmark rates). FBIL was incorporated in December 2014 and  commenced operations in February 2015. </p>
determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments;  
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<p>  The new benchmark setting is  based on &ldquo;transaction rates&rsquo; rather than &lsquo;polled rates&rsquo; by banks. That is, it  is based on trade weighted inter-bank call money transactions on the [https://www.ccilindia.com/Pages/default.aspx Clearing Corporation  of India Ltd] (CCIL)&rsquo;s platform for call money  transactions - Negotiated Dealing System [https://www.ccilindia.com/FAQ/Pages/SecuritySettlement.aspx (NDS)-Call  platform] - between 9 A.M. and 10 A.M. The trades will be pulled  out from the NDS-CALL system immediately after the cut-off time. CCIL will be  the calculating agent. The approved methodology for the benchmark is also being  placed on the websites of Fixed Income, Money Market and Derivatives Association  of India (FIMMDA) and Clearing Corporation of India Ltd (CCIL). </p>
determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument; and/or  
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<p>  A minimum of 10  trades with a total traded value of Rs.500 crore in the NDS-Call segment will  be considered as the minimum threshold limit (both) for estimation of the  volume weighted average rate. A rate Range will be computed – Max will be  Weighted Average Rate + 3* Standard Deviation and Min will be Weighted Average  Rate - 3* Standard Deviation. Any trades executed at rates outside the said Max  and Min range will be considered as outlier and will be excluded from the computation  process (i.e. higher than Max and lower than Min). In case either of the  criteria mentioned above (a minimum of 10 trades with a total traded value of  Rs.500 crore) is not met, the timeframe for computation of rates will be  extended by 30 minutes. If the threshold criteria are still not met, then time  frame is extended by another 30 minutes. If the threshold criteria are not met  even after the two extensions, no rate computation will be initiated. The  previous day&rsquo;s values will be used for dissemination. This may continue for a  maximum of two consecutive working days after which if the threshold criteria  are still not met, CCIL will not disseminate any rate on such days and Banks  will use their own fallback mechanism. </p>
• measuring the performance of a financial instrument.
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<p>Thus, Volume  weighted average (VWA)&nbsp;is calculated by averaging the reported trades  after weighting them with their respective volume. The VWA needs price volume  data of all executed deals and is a reliable measure of the market sentiment,  however, suffers from discontinuity if the market is not liquid. </p>
 
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'''Data'''
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*The FBIL  overnight MIBOR can be seen [http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=mibor here].
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*<strong>The FBIL Term MIBOR can be seen </strong>[http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=fbiltermmibor here]
  
  
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==Also see==
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*[http://www.arthapedia.in/index.php?title=MIBOR_and_MIBID MIBOR  and MIBID]
  
  
  
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==References==
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#Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on &lsquo;Financial  Benchmarking&rsquo;]
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#FIMMDA [http://www.fimmda.org/Uploads/general/FBIL-Overnight-Mibor-Press-Release-22-june-2015.pdf Press Release dated 22 July 2015]
  
  
 
==Contributed by==
 
==Contributed by==
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=234 P K Abdul Kareem (IES 1996)] with inputs from officials at National Stock Exchange of India Ltd. (NSE)
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*[http://www.ies.gov.in/myaccount-profile-view.php?memid=234 P.K Abdul Kareem (IES 1996)] with inputs from officials at National Stock Exchange of India Ltd. (NSE)
*Email- [mailto:pkakareem@yahoo.com pkakareem@yahoo.com]
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*Email-[mailto:pkakareem@yahoo.com pkakareem@yahoo.com]
  
 
[[Category:concepts|FBILOvernightMIBOR]]
 
[[Category:concepts|FBILOvernightMIBOR]]

Latest revision as of 06:47, 15 September 2015

FBIL Overnight Mumbai Interbank Outright Rate’ (commonly called as FBIL-Overnight MIBOR (Mumbai Inter-Bank Offer Rate)) is the new benchmark rate for unsecured loans of one day duration fixed by the Board of Financial Benchmarks India Pvt. Ltd (FBIL) based on the actual transactions in the inter-bank call money market.  It reflects the short term funding costs to banks in India and indicates the rate at which banks in India borrow and lend money amongst themselves. The existing benchmark ie. MIBOR based on ‘polled rates’ administered by  Fixed Income Money Market and Derivative Association of India (FIMMDA) and National Stock Exchange (NSE) has been replaced by  this  new Benchmark with effect from July 22, 2015.

FBIL overnight MIBOR is a financial benchmark and is mainly used for pricing, settlement, and valuation of financial contracts. The IOSCO’s Report on Principles for Financial Benchmarks describes financial benchmarks as:

“Prices, estimates, rates, indices or values that are:

Board of Financial Benchmarks India Pvt. Ltd (FBIL) was jointly formed by Fixed Income Money Market and Derivative Association of India (FIMMDA), Foreign Exchange Dealers’ Association of India (FEDAI) and Indian Banks’ Association (IBA) on the basis of recommendations of the RBI committee on ‘Financial Benchmarking’ (Chairperson: Shri P.Vijaya Bhaskar), which recommended measures to improve the system of bench marking. This was in the wake of developments involving misconduct of financial benchmark setters in international financial markets (A few big banks were found to have fixed the polled benchmark rates in order to benefit from derivative trades which are settled on these benchmark rates). FBIL was incorporated in December 2014 and commenced operations in February 2015.

The new benchmark setting is based on “transaction rates’ rather than ‘polled rates’ by banks. That is, it is based on trade weighted inter-bank call money transactions on the Clearing Corporation of India Ltd (CCIL)’s platform for call money transactions - Negotiated Dealing System (NDS)-Call platform - between 9 A.M. and 10 A.M. The trades will be pulled out from the NDS-CALL system immediately after the cut-off time. CCIL will be the calculating agent. The approved methodology for the benchmark is also being placed on the websites of Fixed Income, Money Market and Derivatives Association of India (FIMMDA) and Clearing Corporation of India Ltd (CCIL).

A minimum of 10 trades with a total traded value of Rs.500 crore in the NDS-Call segment will be considered as the minimum threshold limit (both) for estimation of the volume weighted average rate. A rate Range will be computed – Max will be Weighted Average Rate + 3* Standard Deviation and Min will be Weighted Average Rate - 3* Standard Deviation. Any trades executed at rates outside the said Max and Min range will be considered as outlier and will be excluded from the computation process (i.e. higher than Max and lower than Min). In case either of the criteria mentioned above (a minimum of 10 trades with a total traded value of Rs.500 crore) is not met, the timeframe for computation of rates will be extended by 30 minutes. If the threshold criteria are still not met, then time frame is extended by another 30 minutes. If the threshold criteria are not met even after the two extensions, no rate computation will be initiated. The previous day’s values will be used for dissemination. This may continue for a maximum of two consecutive working days after which if the threshold criteria are still not met, CCIL will not disseminate any rate on such days and Banks will use their own fallback mechanism.

Thus, Volume weighted average (VWA) is calculated by averaging the reported trades after weighting them with their respective volume. The VWA needs price volume data of all executed deals and is a reliable measure of the market sentiment, however, suffers from discontinuity if the market is not liquid.


Data


Also see


References

  1. Report of the RBI committee on ‘Financial Benchmarking’
  2. FIMMDA Press Release dated 22 July 2015


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