A revised methodology for setting Australia's bank bill swap rate could include reference to a broader underlying market and a wider rate-setting window, but the fundamentals of the system will remain unchanged.BBSW, which is the benchmark interbank interest rate, represents the midpoint of the national best bid and offer in the locally traded market for Australian Financial Markets Association prime bank legible securities.BBSW serves as a reference rate for the pricing of many debt securities and loan transactions.Prior to September 2013, to determine BBSW panel banks would submit their mid-rates to the Australian Financial Markets Association each morning. After eliminating the outliers AFMA would publish BBSW.Since September 2014, BBSW has been calculated electronically.Earlier this month, the Council of Financial Regulators released a proposal to reform Australia's BBSW methodology. The CFR had circulated a consultation paper last October and incorporated feedback from the industry into its latest paper.To ensure that BBSW remains a trusted, reliable and robust financial benchmark, the CFR has 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.The CFR said the existing definition of eligible securities as negotiable certificates of deposit and bank accepted bills should be retainedIt said BBSW should be calculated by the administrator (AFMA) as the volume weighted average price of NCD and BAB transactions during the rate-setting window.The inclusion of instruments such as term deposits, which would increase the volume of activity in the market, was ruled out on the basis that it could have an adverse effect on existing contracts that reference BBSW.AFMA's existing process for designating prime banks was considered appropriate. The main criterion for prime bank status is that a bank's short-term securities are recognised as being of the highest quality with regard to liquidity, credit and consistency of yield.The current prime banks are ANZ, Commonwealth Bank, National Australia Bank and Westpac.However, the CFR said the definition of the underlying market should be broadened to include transactions where a prime bank was not a counterparty. Broadening the market would see the rate-setting window widened.