ASX recently published a consultation paper inviting market participants to provide feedback on proposed changes to the transaction layer of the BBSW methodology. The objective of the proposed enhancements is to increase the frequency with which BBSW rates are calculated under the transaction layer of the waterfall, whilst ensuring the quality of the rate.

To achieve this, ASX detailed four proposed enhancements within the consultation paper:

• Widen the maturity pool for the 2- to 6-month tenors from +/- 5 Business Days to +/- 10 Business Days and to introduce an asymmetric maturity pool for the 1-month tenor of +10/-5 Business Days
• Lower the volume threshold for the 1-, 3- and 6-month tenors from $200m to $100m
• Introduce a weighted Least Squares Regression (LSR) methodology to complement the existing VWAP methodology
• Progress to the NBBO layer of the BBSW waterfall under specific circumstances

ASX would like to thank those who took the time to respond and provide feedback on the consultation paper. Respondents provided constructive feedback while also raising insightful points for consideration.

All respondents were in favour of the proposed enhancements. The majority cited the increase in frequency with which BBSW will be calculated using a transaction based methodology as the primary reason for supporting the proposed enhancements.

Summary of changes

ASX plans to implement the following changes to the transaction layer of the BBSW methodology:

·        Widen to maturity pool for the 2- to 6-month tenors from +/- 5 Business Days to +/- 10 Business Days and to introduce an asymmetric maturity pool for the 1-month tenor of +10/-5 Business Days.

A couple of respondents noted that under certain scenarios, particularly around holiday periods, there is the potential for one trade to qualify for inclusion across multiple tenors due to the wider maturity pool. Further clarity will be provided on the treatment of these trades in the draft BBSW Calculation Methodology to be made publically available prior to the parallel run.

• Lower the volume threshold for the 1-, 3- and 6-month tenors from $200m to $100m

• Introduce a weighted Least Squares Regression (LSR) methodology to complement the existing VWAP methodology. Note that:

a)      Where all trades for a specific tenor occur on the same trade date, the VWAP calculation methodology will be used; and

b)     Where trades occur on either side of the straight-run date (or one side of the straight-run date and on the straight-run date), the weighted Least Squares Regression calculation methodology will be used.

• Progress to the NBBO layer of the calculation waterfall in specific circumstances

This will only apply if all three rules below are satisfied:

1.      The weighted LSR results in a rate that is greater than 1.5bp away from the NBBO rate; and

2.      Trades are clustered solely towards the front or the back of the maturity pool; and

3.      There are no trade(s) on the straight-run date or on the other side of the straight-run date to anchor the Least Squares Regression calculation.

Target go live and parallel run

ASX plans to implement the above methodology enhancements with a target go-live date of late Q4 2020, subject to regulatory approval.

ASX will undertake a parallel run for the new methodology one month prior to the go-live date.  The results will be made available on the ASX website via the benchmarks page, weekly in arrears. A draft BBSW Calculation Methodology will be made publically available by the end of October. ASX will advise market participants and subscribers via a Market Notice when the draft BBSW methodology becomes available. The market notice will also detail the targeted go-live date, the dates of the parallel run period and when the results will be updated on the ASX website.

During the parallel run period, ASX will use transaction data submitted by Market Participants in accordance with the BBSW Trading Guidelines to calculate BBSW under both the current and enhanced methodology. The parallel run will allow Market Participants to compare and review the performance of the new methodology and raise any questions regarding the results prior to go live.

Market Participants should note that during the parallel run period, there will be no change to daily trade reporting activities and BBSW will continue to be calculated and published each day at 10:30am.

Following the successful completion of the parallel run, a market notice will be published to confirm the go live date of the enhanced methodology.

What do I need to do by when?

No further action is required.

Need more information?

Issued by

Luke Flory, Benchmark Manager

Contact information

+61 (02)  9227 0577
benchmarks@asx.com.au

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