FMDQ OTC Plc has announced the review of the Nigerian Inter-bank Offered Rate data collection and time.
The FMDQ said in a notice published on its website that the move followed a review of the existing NIBOR process and “is in furtherance of FMDQ’s mandate to establish benchmarks with credibility, confidence and integrity”.
In explaining the review, the FMDQ quoted the International Organisation of Securities Commissions Principle for Financial Benchmarks.
The principle says “…the data used to construct a benchmark should be based on prices, rates, indices or values that have been formed by the competitive forces of supply and demand (among others in an active market) and be anchored by observable transactions entered into at arm’s length between buyers and sellers in the market for the interest the benchmark measures”.
According to it, the principle supports the fact that bona fide observable transactions in active markets provide a level of confidence that the prices or values used as the basis of the benchmark are credible.
The FMDQ said an assessment of the Nigerian Money Market trade pattern revealed that active trading occurs during the later hours of the trading session (12pm-2pm).
“This trend is evident in the differential observed between the rates submitted for the NIBOR fixing, executed trades and closing market rates on the same day.
In some cases, the disparity recorded is as wide as 40 per cent,” it said.
To this end, a review of the NIBOR methodology was pertinent to preserve the relevance and credibility of the benchmark.
Consequently, the FMDQ said the NIBOR publication time had been revised to 2pm daily.
It added that reference bank would be required to submit rates in answer to the NIBOR question: “At what rates could you borrow and lend funds, were you to do so by giving inter-bank bids and offers in a reasonable size just prior to 1:30pm?”
The FMDQ had in April 2014 said it had commenced the reform of the Nigerian Inter-bank Offered Rate, stressing that the move was one of several initiatives it had implemented to strengthen the financial markets since it was licensed by the Security and Exchange Commission to operate an over-the-counter market and add transparency, liquidity and efficiency to Nigeria’s growing fixed income market.
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Source : Punch