Bank Negara to phase out nine-month KLIBOR

PETALING JAYA: Bank Negara Malaysia (BNM) will phase out the nine-month Kuala Lumpur Interbank Offered Rate (KLIBOR) effective Jan 1, as part of enhanced standards on the KLIBOR Setting Policy Document to strengthen the integrity of the reference rate.

In a statement yesterday, the central bank said measures are being introduced following a review of the KLIBOR fixing process and broadly covers the areas of governance, oversight, accountability and transparency.

“These measures will align the Policy Document with international best practices under the Principles of Financial Benchmarks issued by the International Organisation of Securities Commission (IOSCO Principles),” it noted.

The nine-month rate is being phased out following industry feedback and the consideration of limited market demand, relevancy and sufficiency of transactional data to support the KLIBOR-setting process.

During the transitional period beginning Jan 1, 2017, BNM said, all market participants with existing contractual agreements referencing the nine-month KLIBOR are expected to review their contracts to provide customers with alternative mechanisms.

“This may include the use of other benchmarks, interpolation of available KLIBOR tenures or any other mutually agreed mechanisms. New contractual agreements should no longer be referenced to the nine-month KLIBOR tenure,” BNM said.

The central bank in consultation with the financial industry will work together to ensure the smooth implementation of the KLIBOR-setting framework.

“Further guidance, where appropriate, will be provided to market participants during this transition phase from the discontinued nine-month KLIBOR tenure to alternative mechanisms,” it added.