by TMR / pic by MUHD AMIN NAHARUL
BANK Negara Malaysia (BNM) launched the Malaysia Overnight Rate (MYOR) as the new alternative reference rate (ARR) for Malaysia.
In a statement the central bank said the MYOR will run in parallel to the existing Kuala Lumpur Interbank Offered Rate (KLIBOR) with periodic reviews to ensure that the financial benchmark rates remain robust and reflective of an active underlying market.
“In Malaysia, This multiple-rate approach is supported by the Financial Stability Board (FSB) and adopted by many other jurisdictions.
“The availability of two financial benchmark rates provides market participants with the flexibility to choose the rate that best suits their needs and facilitates the development of MYOR-based products,” it further stated.
BNM said the offering of MYOR-based products will provide a wider array of hedging instruments that will support additional risk management strategies.
“Globally, ARRs are being introduced to improve the integrity of financial benchmark rates as part of a transition to transaction-based rates, in line with the London Interbank Offered Rate (LIBOR) reforms after the Global Financial Crisis.
“The introduction of ARRs aims to facilitate usage of benchmark rates that are more robust and based upon transactions in active, liquid markets,” BNM stated.
In conjunction with the launch, the Bank has published the MYOR Policy Document, which incorporates key features,governance and standards developed in collaboration with the Financial Markets Committee (FMC) after a robust public consultation process.
The MYOR will be administered and calculated by the Bank as the volume weighted average rate of unsecured overnight Ringgit interbank transactions, including the Bank’s overnight monetary operations (excluding Standing Facilities).
“The publication of MYOR for a given Kuala Lumpur business day will be at 10am on the following business day on the Bank’s website.
“The Bank will also conduct periodic reviews of the MYOR to ensure it remains robust and representative of conditions in the underlying market,” said BNM.
It added that the bank will discontinue the publication of the 2- and 12-month KLIBOR tenors, which are the least referenced rates in the market for financial contracts, on 1 January 2023.
The remaining one-, three- and six-month KLIBOR tenors, which continue to reflect an active underlying market, will be reviewed in the second half of 2022.