HKMA’s announcement on measures to strengthen the HIBOR fixing mechanism

After considering the Treasury Markets Association’s (TMA) report and the Hong Kong Association of Banks’ (HKAB) submission, the Hong Kong Monetary Authority (HKMA) announced today (6 February 2013) a package of measures to strengthen the fixing mechanism for the HKD Interest Settlement Rate (more commonly known as the Hong Kong Interbank Offered Rate or HIBOR).  The measures are designed to enhance the transparency and robustness of the HIBOR fixing mechanism.

The HKMA decided to accept the proposals from the HKAB and the TMA, and requested them to take forward the following enhancement measures in six months’ time:

(a) transfer the administrator function of the HIBOR fixing process to TMA;

(b) institute an effective surveillance and governance structure for the administrator function, with broad representation of HIBOR stakeholders;

(c) develop a comprehensive Code of Conduct, including a clear Rate Submission Guidance, for observance by the reference banks;

(d) phase out HIBOR fixings with little market demand (i.e. 4-month, 5-month, 7-month, 8-month, 9-month, 10-month and 11-month) ¹; and

(e) review the composition of the panel of reference banks every 12 months.

In addition to the above measures, the HKMA considers it appropriate to take further supervisory measures to enhance the integrity and robustness of the revised HIBOR fixing mechanism.  These measures include:

(a) Having satisfied that the industry has developed an appropriate Code of Conduct, the HKMA will require the reference banks to comply with the Code through the issuance of a HKMA Guideline pursuant to Section 7 of the Banking Ordinance.  

(b) The HKMA will explicitly state in the Section 7 Guideline that the Managers, as defined under the Banking Ordinance, in charge of the treasury, risk control and compliance functions take responsibility for the reference bank’s rate submission activities.  

(c) While the HKMA will continue to encourage banks’ voluntary participation in the rate fixing process, it stands ready to exercise powers under the Banking Ordinance to ensure there is a sufficient number of reference banks, which is crucial to the integrity and credibility of the fixing benchmark.

(d) Independent external audits on TMA’s systems of control in respect of HIBOR fixing administration will be conducted periodically.

An HKMA spokesman said, “In approving this package of measures, the HKMA has taken into account relevant experience in some overseas jurisdictions and recent discussions on the principles for benchmark setting by international standard setting bodies such as the International Organization of Securities Commission (IOSCO). The enhancements to the HIBOR fixing process introduced by the HKMA today would help improve significantly the transparency and robustness of the HIBOR fixing mechanism.”

Annex: More detailed explanation of HKMA’s responses to oversight of HIBOR fixing mechanism

Hong Kong Monetary Authority
6 February 2013