Financial Benchmarks India Pvt. Ltd. (FBIL) was jointly formed by Fixed Income, Money Market and Derivatives Association of India (FIMMDA), Foreign Exchange Dealers’ Association of India (FEDAI) and Indian Banks’ Association (IBA), was incorporated in December 2014 as a private limited company and had commenced operations in February 2015. It develops and administers benchmarks relating to the money market, government securities, and foreign exchange rates of major currencies.
FBIL was formed in the wake of developments involving misconduct relating to financial benchmarks in international financial markets, the Reserve Bank of India (RBI) had set up a committee on financial benchmarks in June 2013 which reviewed the process of computation and dissemination of major financial benchmarks in India and gave recommendations on the governance framework.
Benchmarks:
Benchmarks’ mean prices, rates, indices, values, or a combination thereof related to financial instruments that are calculated periodically and used as a reference for pricing or valuation of financial instruments or any other financial contract. The ‘Methodology’, for the purpose of benchmarks, includes the written rules and procedures according to which information is collected and the benchmark is determined.
Financial Benchmarks: Financial benchmarks are standard rates primarily used for pricing, valuation, and settlement purposes in financial markets and contracts.
Significant benchmark: The Reserve Bank shall notify a benchmark as a ‘significant benchmark’ taking into consideration its use, efficiency, and relevance in domestic financial markets. According to RBI notification, the following benchmarks administered by FBIL are significant benchmarks.
(i) Overnight Mumbai Interbank Outright Rate (MIBOR) (ii) Mumbai Interbank Forward Outright Rate (MIFOR) (iii) USD/INR Reference Rate (iv) Treasury Bill Rates (v) Valuation of Government Securities (vi) Valuation of State Development Loans (SDL).
How financial benchmarks are determined?
Rates or financial benchmarks are obtained through the collection of interest rate and foreign exchange rate data from market participants like banks by the benchmark administrator. The exchange rate of the rupee obtained daily is published by the RBI after its estimation by the benchmark administrator.
Responsibilities of FBIL:
FBIL has assumed the responsibility for standardising the valuation of Government securities (issued by both the Centre and States) done by FIMMDA; and, also assumes the responsibility for computation and dissemination of the daily “Reference Rate” for Spot USD/INR and other major currencies against the Rupee, done by the Reserve Bank. With effect from June 23, 2015, the board of Financial Benchmarks India (FBIL) has taken over the responsibility of administration of the overnight inter-bank Mibor benchmark rate, a function which was performed by the National Stock Exchange till then. The move was seen as a first step in the process of taking over the responsibility of benchmark-setting over a period of time.
Based on a detailed analysis of overnight call money market data, the board of FBIL has decided to adopt a benchmark based on trade-weighted inter-bank call money transactions on the Clearing Corporation of India Ltd (CCIL)’s NDS-Call platform between 9 am and 10 am. The benchmark is known as the FBIL Overnight Mumbai Interbank Outright Rate (FBIL-Overnight Mibor) and CCIL is the calculating agent.
FBIL also assumed the responsibility for administering the valuation of Government securities with effect from March 31, 2018. The RBI regulated entities, including banks, non-bank financial companies, Primary Dealers, Co-Operative Banks, and All India Financial Institutions who are required to value Government securities to use the prices published by FBIL.
FBIL commenced the process of computing and disseminating the reference rate for USD/INR and the exchange rate of other major currencies with effect from July 10, 2018, as the daily reference rate issued by RBI was discontinued from July 9, 2018. These rates would be published every weekday (excluding Saturdays, Sundays, and Bank Holidays in Mumbai) and they would be available on FBIL’s website (www.fbil.org.in).
FBIL has so far taken over existing benchmarks such as Mumbai Inter-Bank Outright Rate (MIBOR) and option volatility and introduced new benchmarks such as Market Repo Overnight Rate (MROR), Certificate of Deposits (CDs), and T-Bills yield curves. The development of FBIL as an independent organisation for the administration of all financial market benchmarks including valuation benchmarks is important for the credibility of these benchmarks and the integrity of financial markets. Financial Benchmarks India (FBIL) has introduced two new benchmarks — FBIL-T-Bill and FBIL-Certificates of Deposit (FBIL-CD) — which will come into effect from August 23.
Responsibilities of FBIL:
The FBIL is responsible for all the aspects related to the benchmarks it issues- like- as the collection and submission of market data (about the interest rate, yield of G-secs, and exchange rate of the rupee) and information including polled data (data polled by financial institutions about the market figures), formulation, adoption. These rates like interest rates or foreign exchange rates are followed by institutions and market participants in financial transactions. However, in the case of market-wide trends about these indicators being known, market participants can engage in the correct transactions. The Reserve Bank has stated to have advised the benchmark submitter to implement various measures for strengthening the governance framework for benchmark submission.
Whistleblowing mechanism:
The RBI Report of the Committee on Financial Benchmarks enjoins the Benchmark Administrator to establish an effective Whistleblowing mechanism to facilitate early detection of any potential misconduct or irregularities in the benchmark determination process
Scope:: Any individual may submit (anonymously if so desired) whistleblowing reports if the person is aware of any suspicious and/or potentially manipulative activities that may affect the integrity of any aspect of those benchmarks that the FBIL administers, such as (but not limited to) –
(i) methodology of the rates/benchmarks administered by FBIL
(ii) rate submission arrangements of the contributors;
(iii) calculation/publication of the rates/benchmarks by the calculating agents; and
(iv) administration of the benchmarks by the FBIL.
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