Many corporate loans, derivatives and floating rate bonds use interbank offered rates (IBORs) to set an underlying market reference rate to which a lending margin or premium is then added.
The finance world is moving from IBORs to an alternative rate setting method less vulnerable to manipulation. While the commonly used New Zealand dollar Bank Bill Benchmark Rate (BKBM) will remain, it will require amendment.
Reported back from select committee this month, the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill will facilitate New Zealand’s compliance with recent European Union and Group of Twenty benchmark reforms in this area, but most of the heavy lifting will be down to market participants, particularly banks.
We outline the practical implications of the change, and the forces driving it.
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