AFMA reviews BBSW

The Australian Financial Markets Association will review its process for compiling bank bill swap rates "to ensure it remains an accurate indicator of market prices, particularly in times of volatility".

AFMA executive director Duncan Fairweather said there was no issue with the one to six month BBSW contracts, which have high volumes.

However the nine to 12 month contracts, which are not used as much, will be reviewed to see if AFMA's collection and presentation of data remains a "robust measure".

AFMA had to go into minor damage control mode yesterday after a news report appeared over the weekend that confused AFMA's review of BBSW with a separate review of the London interbank rate, or Libor.

The Libor review was prompted by fears that banks contributing data to Libor were not disclosing their true funding costs.

Fairweather said yesterday: "There is no connection between what we are doing here and Libor."

BBSW reference rates are derived from real price data submitted by contributing banks. The reference rate quoted by AFMA for one to six month contracts is the mid point of the actual prices at which contributors are prepared to buy and sell prime bank bills.

Calculation of the reference rates for nine to 12 month contracts is a more involved process that uses a zero coupon curve based on a strip of the relevant SFE 90 day bank bill futures contract for each term. The data is then averaged by AFMA using a widely accepted methodology.

It is this process that will be reviewed.