The Council of Financial Regulators has published a discussion paper summarising submissions to its consultation paper on the evolution of the methodology for the bank bill swap rate (BBSW) benchmark. The paper includes a proposal for the evolution of the BBSW methodology to be discussed with the Australian Financial Markets Association (AFMA) and other market participants.

BBSW is a key financial benchmark in Australia and is administered by AFMA (in its role as ‘Administrator’). BBSW rates serve as reference rates for pricing many debt securities and lending transactions, and are used to determine payment obligations on a range of derivatives.

It is proposed that BBSW would be calculated by the Administrator as the volume-weighted average price (VWAP) of bank accepted bills (BABs) and negotiable certificates of deposit (NCDs) transactions during a widened rate set window.

It is expected that as a result, the current BBSW methodology will be maintained until December 2016 while the new methodology is implemented.