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MIBOR and MIBID

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Mumbai Inter-Bank Offer Rate (MIBOR) and Mumbai Inter-Bank Bid Rate (MIBID) are the benchmark rates at which Indian banks lend and borrow money to each other. The '''bid''' is the price at which the market would buy and the '''offer''' (or '''ask''') is the price at which the market would sell. These rates reflect the short term funding costs of major banks. In other words, MIBOR reflects the price at which short term funds are made available to participating banks.  
+
<p>Mumbai Inter-Bank Offer Rate (MIBOR) and Mumbai Inter-Bank Bid Rate (MIBID) are the benchmark rates at which Indian banks lend and borrow money to each other. The&nbsp;<strong>bid</strong>&nbsp;is the price at which the market would&nbsp;<em>buy</em>&nbsp;and the <strong>offer</strong>&nbsp;(or&nbsp;<strong>ask</strong>) is the price at which the market would&nbsp;<em>sell</em>.  These rates reflect the short term funding costs of major banks. In other words, MIBOR reflects the price at which short term funds are made available to participating banks. </p>
 +
<p>  MIBID  is&nbsp;the rate at which banks would like to borrow from other banks and MIBOR  is the rate at which banks are willing to lend to other banks. Contrary to  general perception, MIBID is <em><u>not</u></em> the rate at which banks attract deposits from other banks. </p>
 +
<p>  MIBOR is the  Indian version of [https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf London  Interbank Offer Rate] (LIBOR). MIBOR is fixed for  overnight to 3 month long funds and these rates are published every day at a  designated time. Of the above tenors, the overnight MIBOR is the most widely  used one which is used for pricing and settlement of [http://www.investopedia.com/terms/o/overnightindexswap.asp Overnight  Index Swaps] (OIS). Corporates use the OIS  for hedging their interest rate risks<sup class="reference">[[#ref1|[1]]]</sup>. The MIBID/MIBOR rate is also  used as a bench mark rate for majority of deals struck for [https://en.wikipedia.org/wiki/Interest_rate_swap Interest Rate Swaps] (IRS), [http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/characteristics-fras-forward-rate-agreements.asp Forward  Rate Agreements] (FRA), [http://www.investopedia.com/terms/f/frn.asp Floating Rate Debentures] and [http://www.investopedia.com/terms/t/termdeposit.asp Term  Deposits]. The aggregate amount of outstanding  interbank/[https://en.wikipedia.org/wiki/Primary_dealer Primary  Dealers] (PD) notional principal referenced to MIBOR  remained at INR 16,847.6 billion as on October 31, 2013<sup class="reference">[[#ref2|[2]]]</sup>.</p>
 +
<p>&nbsp;</p>
 +
<p><strong>Financial Benchmarks</strong><br>
 +
  MIBOR, MIBID  etc. are all financial benchmarks. Financial benchmarks are 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>
 +
<p><em>&ldquo;Prices, estimates, rates,  indices or values that are:</em></p>
 +
<ul>
 +
  <li><em>Made available to users, whether free of charge or for payment;</em></li>
 +
  <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>
 +
  <li><em>Used for reference for purposes that includes one or more of the  following:</em></li>
 +
  <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>&nbsp;</li>
 +
  <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>&nbsp;</li>
 +
  <li style="margin-left:20px;"><em> measuring the performance  of a financial instrument.&rdquo;</em></li>
 +
</ul>
 +
<p>The London  Inter-bank Offer Rate (LIBOR) is the primary global benchmark for short term  interest rates and has been used for pricing and settlement of large varieties  of interest rate and derivative contracts. Hundreds of trillions of dollars  worth of outstanding loans and financial contracts world-wide are estimated to  be linked to LIBOR. Before the rate fixation scandal, [http://www.bbatrent.com/disclaimer British  Bankers' Association&nbsp;](BBA) used to calculate LIBOR. Now the responsibility for its administration has  been transferred to&nbsp;[https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf Intercontinental Exchange] (ICE). Thus,&nbsp;<strong>BBA  Libor</strong>&nbsp;is now known as <strong>ICE Libor</strong>. </p>
 +
<p>  ICE  LIBOR is produced for the following five currencies with seven maturities  quoted for each - ranging from overnight to 12 months, producing 35 rates each  business day. </p>
 +
<ul>
 +
  <li>CHF (Swiss Franc)</li>
 +
  <li>EUR (Euro)</li>
 +
  <li>GBP (Pound Sterling)</li>
 +
  <li>JPY (Japanese Yen)</li>
 +
  <li>USD (US Dollar)</li>
 +
</ul>
 +
<p>ICE  LIBOR provides an indication of the average rate at which a LIBOR contributor  bank can obtain unsecured funding in the London interbank market for a given  period, in a given currency. Individual ICE LIBOR rates are the end-product of  a calculation based upon submissions from LIBOR contributor banks.ICE Benchmark  Administration maintains a reference panel of between 11 and 18 contributor  banks for each currency calculated<sup class="reference">[[#ref3|[3]]]</sup>.</p>
 +
<p>  The Indian foreign exchange and Rupee interest rate benchmarks are  used by the banking sector mainly for two purposes, i.e. </p>
 +
<ul>
 +
  <li>pricing and settlement of foreign exchange and Rupee interest rate  contracts, </li>
 +
  <li>periodic valuation of various foreign exchange and Rupee interest  rate related assets and liabilities. </li>
 +
</ul>
 +
<p>The major foreign exchange and interest rate benchmarks currently  in use by the banking sector are listed below.</p>
 +
<p><em><u>A. Rupee Interest Rate Benchmarks</u></em></p>
 +
<ol>
 +
  <li>[http://www.fimmda.org/ Fixed Income Money Market and      Derivative Association of India] (FIMMDA)- National Stock      Exchange (NSE) Mumbai Interbank Bid Rate (MIBID) and Offer Rate (MIBOR)</li>
 +
  <li>FIMMDA-Thomson      Reuters Mumbai Interbank Forward Offered Rate (MIFOR)</li>
 +
  <li>Thomson      Reuters Indian Benchmark Yield Curve (INBMK)</li>
 +
  <li>FIMMDA-Thomson      Reuters Mumbai Interbank Overnight Indexed Swaps (MIOIS)</li>
 +
  <li>FIMMDA-Thomson      Reuters Mumbai Interbank Offered Currency Swaps (MIOCS)</li>
 +
  <li>FIMMDA-[http://pdai.org.in/about-us/index.html Primary Dealers Association of      India] (PDAI) G-Sec Yield Curve</li>
 +
  <li>FIMMDA-      PDAI Spread for Government of India (GoI) Floating Rate Bonds</li>
 +
  <li>FIMMDA-      PDAI Prices for State Development Loans</li>
 +
  <li>FIIMDA-      PDAI &nbsp;Prices for Corporate Bonds</li>
 +
  <li>FIMMDA-Thomson      Reuters T-Bill Curve</li>
 +
  <li>FIMMDA-Thomson      Reuters [https://en.wikipedia.org/wiki/Commercial_paper Commercial Paper] (CP) Curve</li>
 +
  <li>Thomson      Reuters [https://en.wikipedia.org/wiki/Certificate_of_deposit Certificate of Deposits] (CD) Curve</li>
 +
</ol>
 +
<p>Of  the various benchmarks currently used in the market, MIBOR is the most liquid  benchmark in rupee interest rate contracts, accounting for 92 percent share of  the total trades. </p>
 +
<p><em><u>B. Foreign Exchange Benchmarks</u></em></p>
 +
<ol>
 +
  <li>RBI      Reference rates</li>
 +
  <li>[http://www.fedai.org.in/ Foreign Exchange Dealers&rsquo;      Association of India] (FEDAI) Spot Fixing Rates</li>
 +
  <li>FEDAI      Foreign Currency Non-Resident (FCNR(B)) Benchmark Rates</li>
 +
  <li>FEDAI      Month end Revaluation Rate – Foreign Exchange Contracts</li>
 +
  <li>FEDAI      USD-INR Option Volatility</li>
 +
</ol>
 +
<p>&nbsp;</p>
 +
<p><strong>Evolution of MIBOR- How  MIBOR is fixed?</strong><br>
 +
  An Internal Committee  at NSE for the Development of the Debt Market had studied and recommended the  modalities for the development for a benchmark rate for the [http://www.investopedia.com/terms/i/interbank_call_money_market.asp call  money market]. Accordingly, [http://www.nseindia.com/ National Stock Exchange] (NSE) developed and launched the NSE Mumbai Inter-bank Bid Rate  (MIBID) and NSE Mumbai Inter-bank Offer Rate (MIBOR) for the overnight [http://www.investopedia.com/terms/i/interbank_call_money_market.asp call  money market] on June 15, 1998. The success of  the Overnight NSE MIBID-MIBOR encouraged the Exchange to develop a benchmark  rate for the term money market. Thus, NSE launched the 14-day NSE MIBID- MIBOR  on November 10, 1998 and the longer term money market benchmark rates for 1  month and 3 months on December 1, 1998.&nbsp;[http://www.fimmda.org/ Fixed Income Money Market and Derivative  Association of India] (FIMMDA) became a partner to NSE  in co-branding the dissemination of MIBID-MIBOR rates for the overnight and  term segments on March 4, 2002 and the product thereafter was rechristened as  FIMMDA-NSE MIBID/MIBOR. Later, NSE introduced a 3 Day FIMMDA-NSE MIBID-MIBOR on  all Fridays with effect from June 6, 2008 in addition to existing overnight  rate. </p>
 +
<p>FIMMDA-NSE MIBID  MIBOR was based on rates polled by NSE from a representative panel of 30 banks/  primary dealers. That is, participating banks are asked at what rate they would  be borrowing/lending funds of a reasonable market size at the scheduled time of  reference. Extreme values are avoided while calculating the reference rates and  the mean or average benchmark rate is calculated with &quot;[https://en.wikipedia.org/wiki/Bootstrapping_(statistics) Bootstrapping]&quot; scores (i.e., computing the reference rate from a sample with replacement, as an  average of the polled rates after an appropriate amount of trimming to minimize  noise (outliers) and then computing a measure of dispersion i.e. the confidence  intervals for the trimmed means/average). </p>
 +
<p>Every day the  FIMMDA-NSE MIBID MIBOR along with their respective standard deviations  (probability that the estimated trimmed mean obtained after avoiding extreme  values, lies in a given range) were disseminated to the market at 9.40 (IST)  for overnight rates (3 day on all Fridays) and at 11.30 PM for the three term  rates, viz. 14-day, 1-month and 3-month. The structure of the reporting is  given below. </p>
  
MIBID is the rate at which banks would like to borrow from other banks and MIBOR is the rate at which banks are willing to lend to other banks. Contrary to general perception, MIBID is not the rate at which banks attract deposits from other banks.  
+
<table border="0" cellspacing="0" cellpadding="0" width="100%" class="table_formatting">
 +
  <tr>
 +
    <td colspan="6" align="center">FIMMDA-NSE MIBID MIBOR for    the Day</td>
 +
  </tr>
 +
  <tr bgcolor="#FADECB">
 +
    <td><strong>Category</strong></td>
 +
    <td><strong>Time</strong></td>
 +
    <td><strong>MIBOR</strong></td>
 +
    <td><strong>Standard Deviation of MIBOR</strong></td>
 +
    <td><strong>MIBID</strong></td>
 +
    <td><strong>Standard Deviation of MIBID</strong></td>
 +
  </tr>
 +
  <tr>
 +
    <td><strong>OVERNIGHT</strong></td>
 +
    <td>9:40 a.m.</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
  </tr>
 +
  <tr bgcolor="#FADECB">
 +
    <td><strong>3 DAY</strong></td>
 +
    <td>9:40 a.m.</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
  </tr>
 +
  <tr>
 +
    <td><strong>14 DAY</strong></td>
 +
    <td>11:30 a.m.</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
  </tr>
 +
  <tr bgcolor="#FADECB">
 +
    <td><strong>1 MONTH</strong></td>
 +
    <td>11:30 a.m.</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
  </tr>
 +
  <tr>
 +
    <td><strong>3 MONTH</strong></td>
 +
    <td>11:30 a.m.</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
    <td>&nbsp;</td>
 +
  </tr>
 +
</table>
  
MIBOR is the Indian version of [https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf London Interbank Offer Rate] (LIBOR). MIBOR is fixed for overnight to 3 month long funds and these rates are published every day at a designated time. Of the above tenors, the overnight MIBOR is the most widely used one which is used for pricing and settlement of [http://www.investopedia.com/terms/o/overnightindexswap.asp Overnight Index Swaps] (OIS). Corporates use the OIS for hedging their interest rate risks . The MIBID/MIBOR rate is also used as a bench mark rate for majority of deals struck for [https://en.wikipedia.org/wiki/Interest_rate_swap Interest Rate Swaps] (IRS), [http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/characteristics-fras-forward-rate-agreements.asp Forward Rate Agreements] (FRA), [http://www.investopedia.com/terms/f/frn.asp Floating Rate Debentures] and [http://www.investopedia.com/terms/t/termdeposit.asp Term Deposits]. The aggregate amount of outstanding interbank/[https://en.wikipedia.org/wiki/Primary_dealer Primary Dealers] (PD) notional principal referenced to MIBOR remained at INR 16,847.6 billion as on October 31, 2013 .
 
  
  
'''Financial Benchmarks'''
+
<p>As is the  practice internationally, a polled rate, instead of actual transaction data was  used, so as to ensure continuous publication of this systemic benchmark rate,  even in times when liquidity is low and there are few transactions on which to  base the rate. Further, the method of polling was adopted because market  participants generally do not like to reveal the identity of those whom they  have lent and at what rate they have lent. However, obtaining benchmark  reference rates by polling a few market participants and summarizing the prices  they report suffer from lack of transparency, accuracy and truthfulness in  reporting and is liable to corruption and fixing since the number of  participants is limited. </p>
 +
<p> In the wake of 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), the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI  committee on &lsquo;Financial Benchmarking&rsquo;] (Chairperson: Shri P.Vijaya  Bhaskar) recommended measures to improve the system of bench marking in India. </p>
 +
<p>  Acting on these  recommendations, <strong>Board</strong> <strong>of Financial Benchmarks India Pvt. Ltd</strong> (FBIL) was jointly formed by 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). FBIL was incorporated in December 2014 and commenced operations in  February 2015. </p>
 +
<p>  As part of the measures to  initiate reforms in the area of benchmark setting, the existing benchmark ie. MIBOR based on &lsquo;polled rates&rsquo;  administered by  FIMMDA and NSE has been  replaced by  a  new Benchmark known as &lsquo;FBIL Overnight Mumbai  Interbank  Outright Rate&rsquo; (<strong>FBIL-Overnight MIBOR</strong>) and the new  benchmark has been in operation from July 22,2015. 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 FIMMDA and Clearing Corporation of India Ltd(CCIL). </p>
 +
<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. 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>
 +
<p>  Accordingly, computation  &amp; dissemination of FIMMDA-NSE MIBID - MIBOR  for overnight and three days were discontinued  w.e.f July 22, 2015. The other rates (14 Day, 1 month and 3 month rates) are still  being published, for which NSE is awaiting further directions as on date. The FBIL proposes to take over administration of forex benchmarks  and other Indian Rupee interest rate benchmarks over a period of time after  careful examination of the methodology and utility to the financial markets in  consultation with the stakeholders. There will be periodic review of the  benchmark methods to ensure that they are robust and conform to the best  governance standards.</p>
  
MIBOR, MIBID etc. are all financial benchmarks. Financial benchmarks are 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:
+
<p>Reserve Bank of India (RBI) announced in the Sixth Bi-monthly Monetary Policy Statement for the year 2017-18 in February, 2018 that Financial Benchmarks India Private Limited (FBIL) will assume, i.e. take over from RBI, the responsibility of computation and dissemination of reference rate for USD/INR and exchange rate of other major currencies at some appointed date. FIBIL has commenced the process of computing and disseminating reference rate for USD/INR and exchange rate of other major currencies with effect from July 10, 2018. Accordingly, the dissemination of Exchange Rate on RBI’s website has been discontinued now. </p>
  
“Prices, estimates, rates, indices or values that are:
 
  
a) Made available to users, whether free of charge or for payment;
 
  
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;
+
<span class="small_footernote" id="ref1">1. The OIS is actively traded by the banks and primary dealers (wholesale traders in securities) with average daily  trading volume (notional principal) of INR 105.7 billion during the period from  May to October 2013. Source: Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on &lsquo;Financial  Benchmarking&rsquo;] </span>
  
c) Used for reference for purposes that includes one or more of the following:
+
<span class="small_footernote" id="ref2">2. Source: Report  of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI  committee on &lsquo;Financial Benchmarking&rsquo;] </span>
  
The OIS is actively traded by the banks and primary dealers (wholesale traders in securities) with average daily trading volume (notional principal) of INR 105.7 billion during the period from May to October 2013.
+
<span class="small_footernote" id="ref3">3. Source: [https://www.theice.com/iba/libor https://www.theice.com/iba/libor] </span>
Source: Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18RBI committee on ‘Financial Benchmarking’]
+
  
  Source: [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 Report of the RBI committee on ‘Financial Benchmarking’]
 
  
• determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments;
 
  
• 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
+
==Data==
 +
*The FBIL  overnight MIBOR can be seen [http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=mibor here].
 +
*<strong>The FBIL Term MIBOR can be seen </strong>[http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=fbiltermmibor here]<strong>. </strong>
 +
*<strong>FIMMDA-NSE MIBID  MIBOR can be seen </strong>[http://www.nseindia.com/products/content/debt/wdm/fimmda_mibid_mibor.htm here]<strong>. </strong>
  
• measuring the performance of a financial instrument.”
 
  
 +
==References==
 +
*[https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf The FAQ on LIBOR]
 +
*Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on &lsquo;Financial  Benchmarking&rsquo;]
 +
*FIMMDA [http://www.fimmda.org/Uploads/general/FBIL-Overnight-Mibor-Press-Release-22-june-2015.pdf Press Release dated 22 July 2015]
 +
*[http://www.nseindia.com/products/content/debt/wdm/fimmda_mibid_mibor.htm NSE&rsquo;s brief on MIBOR]
  
The London Inter-bank Offer Rate (LIBOR) is the primary global benchmark for short term interest rates and has been used for pricing and settlement of large varieties of interest rate and derivative contracts. Hundreds of trillions of dollars worth of outstanding loans and financial contracts world-wide are estimated to be linked to LIBOR. Before the rate fixation scandal, [http://www.bbatrent.com/disclaimer British Bankers' Association] (BBA) used to calculate LIBOR. Now the responsibility for its administration has been transferred to [https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf Intercontinental Exchange] (ICE). Thus, '''BBA Libor''' is now known as '''ICE Libor'''.
 
  
ICE LIBOR is produced for the following five currencies with seven maturities quoted for each - ranging from overnight to 12 months, producing 35 rates each business day.
+
==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)
 
+
*Email-[mailto:pkakareem@yahoo.com pkakareem@yahoo.com]
• CHF (Swiss Franc)
+
 
+
• EUR (Euro)
+
 
+
• GBP (Pound Sterling)
+
 
+
• JPY (Japanese Yen)
+
 
+
• USD (US Dollar)
+
 
+
ICE LIBOR provides an indication of the average rate at which a LIBOR contributor bank can obtain unsecured funding in the London interbank market for a given period, in a given currency. Individual ICE LIBOR rates are the end-product of a calculation based upon submissions from LIBOR contributor banks.ICE Benchmark Administration maintains a reference panel of between 11 and 18 contributor banks for each currency calculated .
+
 
+
The Indian foreign exchange and Rupee interest rate benchmarks are used by the banking sector mainly for two purposes, i.e.
+
 
+
(i) pricing and settlement of foreign exchange and Rupee interest rate contracts,
+
 
+
(ii) periodic valuation of various foreign exchange and Rupee interest rate related assets and liabilities.
+
 
+
  Source: [https://www.theice.com/iba/libor https://www.theice.com/iba/libor]
+
 
+
The major foreign exchange and interest rate benchmarks currently in use by the banking sector are listed below.
+
 
+
A. Rupee Interest Rate Benchmarks
+
 
+
1. [http://www.fimmda.org/ Fixed Income Money Market and Derivative Association of India] (FIMMDA)- National Stock Exchange (NSE) Mumbai Interbank Bid Rate (MIBID) and Offer Rate (MIBOR)
+
 
+
2. FIMMDA-Thomson Reuters Mumbai Interbank Forward Offered Rate (MIFOR)
+
 
+
3. Thomson Reuters Indian Benchmark Yield Curve (INBMK)
+
 
+
4. FIMMDA-Thomson Reuters Mumbai Interbank Overnight Indexed Swaps (MIOIS)
+
 
+
5. FIMMDA-Thomson Reuters Mumbai Interbank Offered Currency Swaps (MIOCS)
+
 
+
6. FIMMDA- [http://pdai.org.in/about-us/index.html Primary Dealers Association of India] (PDAI) G-Sec Yield Curve
+
 
+
7. FIMMDA- PDAI Spread for Government of India (GoI) Floating Rate Bonds
+
 
+
8. FIMMDA- PDAI Prices for State Development Loans
+
 
+
9. FIIMDA- PDAI  Prices for Corporate Bonds
+
 
+
10. FIMMDA-Thomson Reuters T-Bill Curve
+
 
+
11. FIMMDA-Thomson Reuters [https://en.wikipedia.org/wiki/Commercial_paper Commercial Paper] (CP) Curve
+
 
+
12. Thomson Reuters [https://en.wikipedia.org/wiki/Certificate_of_deposit Certificate of Deposits] (CD) Curve
+
 
+
Of the various benchmarks currently used in the market, MIBOR is the most liquid benchmark in rupee interest rate contracts, accounting for 92 percent share of the total trades.
+
 
+
 
+
B. Foreign Exchange Benchmarks
+
 
+
 
+
1. RBI Reference rates
+
 
+
2. [http://www.fedai.org.in/ Foreign Exchange Dealers’ Association of India] (FEDAI) Spot Fixing Rates
+
 
+
3. FEDAI Foreign Currency Non-Resident (FCNR(B)) Benchmark Rates
+
 
+
4. FEDAI Month end Revaluation Rate – Foreign Exchange Contracts
+
 
+
5. FEDAI USD-INR Option Volatility
+
 
+
 
+
 
+
'''Evolution of MIBOR- How MIBOR is fixed?'''
+
 
+
An Internal Committee at NSE for the Development of the Debt Market had studied and recommended the modalities for the development for a benchmark rate for the [http://www.investopedia.com/terms/i/interbank_call_money_market.asp call money market]. Accordingly, [http://www.nseindia.com/ National Stock Exchange] (NSE) developed and launched the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai Inter-bank Offer Rate (MIBOR) for the overnight [http://www.investopedia.com/terms/i/interbank_call_money_market.asp call money market] on June 15, 1998. The success of the Overnight NSE MIBID-MIBOR encouraged the Exchange to develop a benchmark rate for the term money market. Thus, NSE launched the 14-day NSE MIBID- MIBOR on November 10, 1998 and the longer term money market benchmark rates for 1 month and 3 months on December 1, 1998. [http://www.fimmda.org/ Fixed Income Money Market and Derivative Association of India] (FIMMDA) became a partner to NSE in co-branding the dissemination of MIBID-MIBOR rates for the overnight and term segments on March 4, 2002 and the product thereafter was rechristened as FIMMDA-NSE MIBID/MIBOR. Later, NSE introduced a 3 Day FIMMDA-NSE MIBID-MIBOR on all Fridays with effect from June 6, 2008 in addition to existing overnight rate.
+
 
+
FIMMDA-NSE MIBID MIBOR was based on rates polled by NSE from a representative panel of 30 banks/ primary dealers. That is, participating banks are asked at what rate they would be borrowing/lending funds of a reasonable market size at the scheduled time of reference. Extreme values are avoided while calculating the reference rates and the mean or average benchmark rate is calculated with "[https://en.wikipedia.org/wiki/Bootstrapping_(statistics) Bootstrapping]" scores (i.e., computing the reference rate from a sample with replacement, as an average of the polled rates after an appropriate amount of trimming to minimize noise (outliers) and then computing a measure of dispersion i.e. the confidence intervals for the trimmed means/average).
+
 
+
Every day the FIMMDA-NSE MIBID MIBOR along with their respective standard deviations (probability that the estimated trimmed mean obtained after avoiding extreme values, lies in a given range) were disseminated to the market at 9.40 (IST) for overnight rates (3 day on all Fridays) and at 11.30 PM for the three term rates, viz. 14-day, 1-month and 3-month. The structure of the reporting is given below.
+
 
+
 
+
FIMMDA-NSE MIBID MIBOR for the Day
+
Category Time MIBOR Standard Deviation of MIBOR MIBID Standard Deviation of MIBID
+
OVERNIGHT 9:40 a.m.
+
3 DAY 9:40 a.m.
+
14 DAY 11:30 a.m.
+
1 MONTH 11:30 a.m.
+
3 MONTH 11:30 a.m.
+
 
+
As is the practice internationally, a polled rate, instead of actual transaction data was used, so as to ensure continuous publication of this systemic benchmark rate, even in times when liquidity is low and there are few transactions on which to base the rate. Further, the method of polling was adopted because market participants generally do not like to reveal the identity of those whom they have lent and at what rate they have lent. However, obtaining benchmark reference rates by polling a few market participants and summarizing the prices they report suffer from lack of transparency, accuracy and truthfulness in reporting and is liable to corruption and fixing since the number of participants is limited. 
+
 
+
 
+
In the wake of 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), the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on ‘Financial Benchmarking]’ (Chairperson: Shri P.Vijaya Bhaskar) recommended measures to improve the system of bench marking in India.
+
 
+
 
+
Acting on these recommendations, '''Board of Financial Benchmarks India Pvt. Ltd''' (FBIL) was jointly formed by FIMMDA, [http://www.fedai.org.in/ Foreign Exchange Dealers]’ Association of India (FEDAI) and [http://www.iba.org.in/ Indian Banks’ Association] (IBA). FBIL was incorporated in December 2014 and commenced operations in February 2015.
+
 
+
 
+
As part of the measures to initiate reforms in the area of benchmark setting, the existing benchmark ie. MIBOR based on ‘polled rates’ administered by  FIMMDA and NSE has been replaced by  a  new Benchmark known as ‘FBIL Overnight Mumbai Interbank  Outright Rate’ ('''FBIL-Overnight MIBO'''R) and the new benchmark has been in operation from July 22,2015. 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 [https://www.ccilindia.com/Pages/default.aspx Clearing Corporation of India Ltd] (CCIL)’s platform for call money transactions - [https://www.ccilindia.com/FAQ/Pages/SecuritySettlement.aspx 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 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.
+
 
+
 
+
Accordingly, computation & dissemination of FIMMDA-NSE MIBID - MIBOR  for overnight and three days were discontinued w.e.f July 22, 2015. The other rates (14 Day, 1 month and 3 month rates) are still being published, for which NSE is awaiting further directions as on date. The FBIL proposes to take over administration of forex benchmarks and other Indian Rupee interest rate benchmarks over a period of time after careful examination of the methodology and utility to the financial markets in consultation with the stakeholders. There will be periodic review of the benchmark methods to ensure that they are robust and conform to the best governance standards.
+
 
+
 
+
'''Data'''
+
 
+
 
+
The FBIL overnight MIBOR can be seen [http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=mibor here].
+
 
+
The FBIL Term MIBOR can be seen [http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=fbiltermmibor here].
+
 
+
FIMMDA-NSE MIBID MIBOR can be seen [http://www.nseindia.com/products/content/debt/wdm/fimmda_mibid_mibor.htm here].
+
 
+
 
+
 
+
References
+
 
+
 
+
[https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf The FAQ on LIBOR]
+
 
+
Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on ‘Financial Benchmarking’]
+
 
+
FIMMDA [http://www.fimmda.org/Uploads/general/FBIL-Overnight-Mibor-Press-Release-22-june-2015.pdf Press Release dated 22 July 2015]
+
 
+
[http://www.nseindia.com/products/content/debt/wdm/fimmda_mibid_mibor.htm NSE’s brief on MIBOR]
+
 
+
 
+
 
+
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)
+
 
+
? *Email- [mailto:pkakareem@yahoo.com pkakareem@yahoo.com]
+
  
 
[[Category:concepts|MIBORandMIBID]]
 
[[Category:concepts|MIBORandMIBID]]

Latest revision as of 05:00, 26 September 2018

Mumbai Inter-Bank Offer Rate (MIBOR) and Mumbai Inter-Bank Bid Rate (MIBID) are the benchmark rates at which Indian banks lend and borrow money to each other. The bid is the price at which the market would buy and the offer (or ask) is the price at which the market would sell.  These rates reflect the short term funding costs of major banks. In other words, MIBOR reflects the price at which short term funds are made available to participating banks.

MIBID is the rate at which banks would like to borrow from other banks and MIBOR is the rate at which banks are willing to lend to other banks. Contrary to general perception, MIBID is not the rate at which banks attract deposits from other banks.

MIBOR is the Indian version of London Interbank Offer Rate (LIBOR). MIBOR is fixed for overnight to 3 month long funds and these rates are published every day at a designated time. Of the above tenors, the overnight MIBOR is the most widely used one which is used for pricing and settlement of Overnight Index Swaps (OIS). Corporates use the OIS for hedging their interest rate risks[1]. The MIBID/MIBOR rate is also used as a bench mark rate for majority of deals struck for Interest Rate Swaps (IRS), Forward Rate Agreements (FRA), Floating Rate Debentures and Term Deposits. The aggregate amount of outstanding interbank/Primary Dealers (PD) notional principal referenced to MIBOR remained at INR 16,847.6 billion as on October 31, 2013[2].

 

Financial Benchmarks
MIBOR, MIBID etc. are all financial benchmarks. Financial benchmarks are 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:

The London Inter-bank Offer Rate (LIBOR) is the primary global benchmark for short term interest rates and has been used for pricing and settlement of large varieties of interest rate and derivative contracts. Hundreds of trillions of dollars worth of outstanding loans and financial contracts world-wide are estimated to be linked to LIBOR. Before the rate fixation scandal, British Bankers' Association (BBA) used to calculate LIBOR. Now the responsibility for its administration has been transferred to Intercontinental Exchange (ICE). Thus, BBA Libor is now known as ICE Libor.

ICE LIBOR is produced for the following five currencies with seven maturities quoted for each - ranging from overnight to 12 months, producing 35 rates each business day.

ICE LIBOR provides an indication of the average rate at which a LIBOR contributor bank can obtain unsecured funding in the London interbank market for a given period, in a given currency. Individual ICE LIBOR rates are the end-product of a calculation based upon submissions from LIBOR contributor banks.ICE Benchmark Administration maintains a reference panel of between 11 and 18 contributor banks for each currency calculated[3].

The Indian foreign exchange and Rupee interest rate benchmarks are used by the banking sector mainly for two purposes, i.e.

The major foreign exchange and interest rate benchmarks currently in use by the banking sector are listed below.

A. Rupee Interest Rate Benchmarks

  1. Fixed Income Money Market and Derivative Association of India (FIMMDA)- National Stock Exchange (NSE) Mumbai Interbank Bid Rate (MIBID) and Offer Rate (MIBOR)
  2. FIMMDA-Thomson Reuters Mumbai Interbank Forward Offered Rate (MIFOR)
  3. Thomson Reuters Indian Benchmark Yield Curve (INBMK)
  4. FIMMDA-Thomson Reuters Mumbai Interbank Overnight Indexed Swaps (MIOIS)
  5. FIMMDA-Thomson Reuters Mumbai Interbank Offered Currency Swaps (MIOCS)
  6. FIMMDA-Primary Dealers Association of India (PDAI) G-Sec Yield Curve
  7. FIMMDA- PDAI Spread for Government of India (GoI) Floating Rate Bonds
  8. FIMMDA- PDAI Prices for State Development Loans
  9. FIIMDA- PDAI  Prices for Corporate Bonds
  10. FIMMDA-Thomson Reuters T-Bill Curve
  11. FIMMDA-Thomson Reuters Commercial Paper (CP) Curve
  12. Thomson Reuters Certificate of Deposits (CD) Curve

Of the various benchmarks currently used in the market, MIBOR is the most liquid benchmark in rupee interest rate contracts, accounting for 92 percent share of the total trades.

B. Foreign Exchange Benchmarks

  1. RBI Reference rates
  2. Foreign Exchange Dealers’ Association of India (FEDAI) Spot Fixing Rates
  3. FEDAI Foreign Currency Non-Resident (FCNR(B)) Benchmark Rates
  4. FEDAI Month end Revaluation Rate – Foreign Exchange Contracts
  5. FEDAI USD-INR Option Volatility

 

Evolution of MIBOR- How MIBOR is fixed?
An Internal Committee at NSE for the Development of the Debt Market had studied and recommended the modalities for the development for a benchmark rate for the call money market. Accordingly, National Stock Exchange (NSE) developed and launched the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai Inter-bank Offer Rate (MIBOR) for the overnight call money market on June 15, 1998. The success of the Overnight NSE MIBID-MIBOR encouraged the Exchange to develop a benchmark rate for the term money market. Thus, NSE launched the 14-day NSE MIBID- MIBOR on November 10, 1998 and the longer term money market benchmark rates for 1 month and 3 months on December 1, 1998. Fixed Income Money Market and Derivative Association of India (FIMMDA) became a partner to NSE in co-branding the dissemination of MIBID-MIBOR rates for the overnight and term segments on March 4, 2002 and the product thereafter was rechristened as FIMMDA-NSE MIBID/MIBOR. Later, NSE introduced a 3 Day FIMMDA-NSE MIBID-MIBOR on all Fridays with effect from June 6, 2008 in addition to existing overnight rate.

FIMMDA-NSE MIBID MIBOR was based on rates polled by NSE from a representative panel of 30 banks/ primary dealers. That is, participating banks are asked at what rate they would be borrowing/lending funds of a reasonable market size at the scheduled time of reference. Extreme values are avoided while calculating the reference rates and the mean or average benchmark rate is calculated with "Bootstrapping" scores (i.e., computing the reference rate from a sample with replacement, as an average of the polled rates after an appropriate amount of trimming to minimize noise (outliers) and then computing a measure of dispersion i.e. the confidence intervals for the trimmed means/average).

Every day the FIMMDA-NSE MIBID MIBOR along with their respective standard deviations (probability that the estimated trimmed mean obtained after avoiding extreme values, lies in a given range) were disseminated to the market at 9.40 (IST) for overnight rates (3 day on all Fridays) and at 11.30 PM for the three term rates, viz. 14-day, 1-month and 3-month. The structure of the reporting is given below.

FIMMDA-NSE MIBID MIBOR for the Day
Category Time MIBOR Standard Deviation of MIBOR MIBID Standard Deviation of MIBID
OVERNIGHT 9:40 a.m.        
3 DAY 9:40 a.m.        
14 DAY 11:30 a.m.        
1 MONTH 11:30 a.m.        
3 MONTH 11:30 a.m.        


As is the practice internationally, a polled rate, instead of actual transaction data was used, so as to ensure continuous publication of this systemic benchmark rate, even in times when liquidity is low and there are few transactions on which to base the rate. Further, the method of polling was adopted because market participants generally do not like to reveal the identity of those whom they have lent and at what rate they have lent. However, obtaining benchmark reference rates by polling a few market participants and summarizing the prices they report suffer from lack of transparency, accuracy and truthfulness in reporting and is liable to corruption and fixing since the number of participants is limited. 

In the wake of 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), the RBI committee on ‘Financial Benchmarking’ (Chairperson: Shri P.Vijaya Bhaskar) recommended measures to improve the system of bench marking in India.

Acting on these recommendations, Board of Financial Benchmarks India Pvt. Ltd (FBIL) was jointly formed by FIMMDA, Foreign Exchange Dealers’ Association of India (FEDAI) and Indian Banks’ Association (IBA). FBIL was incorporated in December 2014 and commenced operations in February 2015.

As part of the measures to initiate reforms in the area of benchmark setting, the existing benchmark ie. MIBOR based on ‘polled rates’ administered by  FIMMDA and NSE has been replaced by  a  new Benchmark known as ‘FBIL Overnight Mumbai Interbank  Outright Rate’ (FBIL-Overnight MIBOR) and the new benchmark has been in operation from July 22,2015. 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 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.

Accordingly, computation & dissemination of FIMMDA-NSE MIBID - MIBOR  for overnight and three days were discontinued w.e.f July 22, 2015. The other rates (14 Day, 1 month and 3 month rates) are still being published, for which NSE is awaiting further directions as on date. The FBIL proposes to take over administration of forex benchmarks and other Indian Rupee interest rate benchmarks over a period of time after careful examination of the methodology and utility to the financial markets in consultation with the stakeholders. There will be periodic review of the benchmark methods to ensure that they are robust and conform to the best governance standards.

Reserve Bank of India (RBI) announced in the Sixth Bi-monthly Monetary Policy Statement for the year 2017-18 in February, 2018 that Financial Benchmarks India Private Limited (FBIL) will assume, i.e. take over from RBI, the responsibility of computation and dissemination of reference rate for USD/INR and exchange rate of other major currencies at some appointed date. FIBIL has commenced the process of computing and disseminating reference rate for USD/INR and exchange rate of other major currencies with effect from July 10, 2018. Accordingly, the dissemination of Exchange Rate on RBI’s website has been discontinued now.


1. The OIS is actively traded by the banks and primary dealers (wholesale traders in securities) with average daily trading volume (notional principal) of INR 105.7 billion during the period from May to October 2013. Source: Report of the RBI committee on ‘Financial Benchmarking’

2. Source: Report of the RBI committee on ‘Financial Benchmarking’

3. Source: https://www.theice.com/iba/libor


Data


References


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