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Press Release ~ Report on the Review of Hong Kong Interbank Offered Rate

26 Nov 2012


Press release

Report on the Review of Hong Kong Interbank Offered Rate

The Treasury Markets Association (TMA) submitted today (26 November 2012) a report on the review of Hong Kong Interbank Offered Rate (HIBOR) to the Hong Kong Association of Banks (HKAB).  The report is also copied to the Hong Kong Monetary Authority (HKMA) and published on the TMA’s website.


In July 2012, the HKAB initiated a review of HIBOR which is an important financial market benchmark for Hong Kong, in view of worldwide interest in the robustness of benchmark fixings in global financial markets following the developments of London Interbank Offered Rate (LIBOR).  Commissioned by the HKAB, the TMA established a Working Group (TMA WG) to undertake a study.  The TMA hopes that this report, a product of the hard work of all the members of the working group over the past five months, will contribute to the review work of the HKAB. 


The TMA WG concludes that the HIBOR fixing mechanism remains sound.  Worth highlighting is the fact that, unlike LIBOR, reference banks for HIBOR are asked to estimate the funding costs of prime banks in Hong Kong, hence there is substantially less concern about the stigma effect of banks’ submissions in distressed market situations which may create an incentive for banks to under-report the rates in such circumstances.  Back-testing results also suggest that HIBOR fixings have performed well in representing the funding cost of prime banks.


While there has not been any noticeable anomaly in the fixing mechanism, the TMA WG believes there is scope for refinement of this important local benchmark.  Having considered Hong Kong’s own circumstances and taking into account suitable recommendations in the Wheatley Review in the UK, the TMA WG puts forward a five-pronged approach for improving the robustness of the HIBOR fixing mechanism:
  • Providing clear rate submission guidance to reference banks which are contributing rates for the fixing process;
  • Developing a code of conduct which encompasses the rate submission guidance and the sound practices on systems of control that reference banks should put in place.  This code of conduct should be subject to endorsement by the HKMA;
  • The HKAB to consider entrusting the administrator role for HIBOR to a third party so as to enhance independence of the rate fixing process;
  • Confining fixings to only tenors that have strong market demand, including overnight, 1-week, 1-month, 2-month, 3-month, 6-month and 12-month; and
  • Reviewing and enhancing provisions in contracts that reference HIBOR.

The five-pronged approach represents a comprehensive set of immediately actionable steps that can be taken to enhance the robustness of the HIBOR fixing mechanism, if the proposals are accepted by the HKAB and the HKMA.




The TMA was formed in 2005 with an aim to further promote the professionalism and competitiveness of the treasury markets in Hong Kong through developing appropriate codes and standards for the treasury markets, promoting market and product development, enhancing the professionalism of market practitioners, and promoting the profile of Hong Kong as the preferred hub for treasury markets businesses in the Asia-Pacific region.  The TMA comprises Institutional Members which mainly include financial institutions, money brokers, corporations and other organisations which participate in the treasury markets; as well as Individual Members who are practitioners in the treasury markets.


Treasury Markets Association

26 November 2012



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