The Australian Financial Markets Association has finalised changes to the methodology for setting the bank bill swap rate, which it expects to have in place in the next few months.The key change is a move to primary reliance on a volume-weighted average price calculation using a wider market and a longer rate-setting window.Under the new arrangements there will be a "calculation waterfall", starting with a calculation of the volume-weighted average price of primary issuance and secondary trading of eligible securities within a trading window defined as 9am to 10.10am.If this process fails, stage two involves a national best bid and offer, using live executable bids and offers to calculate BBSW. Stage two is the current process for calculating BBSW.If stage one and two both fail, the third stage is an algorithmic calculation drawing on relevant market pricing information.AFMA said in a market notice that the idea of the waterfall was to ensure that the benchmark could be calculated under stressed conditions, as well as under normal market conditions.The existing definitions of eligible securities will be retained. These are negotiable certificates of deposit and bank accepted bills."This will preserve the core property of BBSW as a measure of prime bank funding costs in the wholesale market for certificates of deposits and bank bills," AFMA said.AFMA confirmed that it would hand over benchmark administration to a new administrator, which is yet to be identified.AFMA's changes are in response to proposals put forward by the Council of Financial Regulators. To ensure that BBSW remains a trusted, reliable and robust financial benchmark, the council set three objectives: BBSW should be anchored to transactions in an active underlying market; the BBSW calculation mechanism should be robust enough to handle changing market conditions; and the fundamental properties of BBSW should be maintained.AFMA's existing process for designating prime banks was considered appropriate and will be retained. The current prime banks are ANZ, Commonwealth Bank, National Australia Bank and Westpac.The Financial Stability Board issued a progress report on global reform of major interest rate benchmarks this week, in which it said Australia's benchmark administration would be a regulated activity. It recommended that the Australian reforms include a legal power to compel submissions and a new specific offence of benchmark manipulation applicable to all financial benchmarks.