We, the Japanese Bankers Association ("JBA"), have been exploring measures to enhance the credibility of the JBA TIBOR since last year, in view of issues such as the manipulation of LIBOR and the subsequent international discussions, including those by the International Organization of Securities Commissions ("IOSCO"), on measures to enhance the credibility and transparency of financial benchmarks.
In April this year, we established the Working Committee on TIBOR within the JBA to examine specific measures in consultation with experts and other concerned parties, and have compiled an interim report on measures to enhance the credibility of the JBA TIBOR. The outline of the report is as follows.
Since the commencement of its publication in 1995, the JBA TIBOR has been widely recognized as a major benchmark of short-term Japanese yen interest rates and used in many loan and derivative contracts. Given the significance and public nature of the JBA TIBOR as a financial tool, the JBA will continue to examine specific measures to enhance the credibility of the JBA TIBOR as a major international financial benchmark.
The manipulation of LIBOR prompted the international movement toward improving the credibility and transparency of reference rates and price indices that serve as benchmarks for transactions of various financial instruments. Since last year, efforts have accelerated to enhance the credibility and transparency of widely-used international reference rates, such as LIBOR and EURIBOR. Also, from the perspectives of regulators and central banks, discussions on policy recommendations to restore the market's and user's confidence in financial benchmarks are underway at international organizations, including IOSCO and the Bank for International Settlements.
In July 2012, the JBA conducted a review of all reference banks and service providers on their compliance with the "JBA TIBOR Publication Rules," which provide for TIBOR publication process and other matters, and confirmed that there were no compliance problems at any of the parties reviewed. In addition, in April this year, we established the Working Committee on TIBOR within the JBA, and since then, with the participation of reference banks and outside experts, such as lawyers and auditors, we have been intensively discussing specific measures to enhance the credibility of the JBA TIBOR in an effort to make the JBA TIBOR a more trusted benchmark not only domestically but also internationally.
As a result of the above factors, we have decided to implement the following measures to enhance the credibility of the JBA TIBOR. We will further examine specific measures taking into account the current ongoing international discussions.
(i) Establishment of Code of Conduct
We will revise the JBA TIBOR Publication Rules and transform them into "JBA TIBOR Code of Conduct," stipulating matters that must be observed by reference banks to submit rates and defining necessary systems that must be established. We will require each reference bank to comply with the Code of Conduct, and also strengthen our framework for calculating and publishing TIBOR based on rates appropriately submitted by the reference banks.
(i) Establishment of an organization dedicated to and responsible for management and administration of TIBOR
We will consider the establishment of a new organization within the JBA dedicated to and responsible for the management and administration of TIBOR, in order to further enhance the framework for the management and administration of TIBOR.
(ii) Establishment of an oversight committee
We will consider the establishment of an independent oversight committee to supervise the management and administration of TIBOR, in order to further enhance the governance of benchmark administration.
(iii) Enhancement of control system
We will consider measures such as external audits to enhance the governance and transparency of benchmark publication services of the JBA.
(i) Clarification of definition of TIBOR
We are not, at the present, planning to change the basic definition of TIBOR itself. However, we will consider clarifying the meaning of a number of terms including "prime bank."
(ii) Reduction of number of tenors
Discussions are ongoing to reduce the number of tenors of other major international benchmarks. We, as well, are considering reducing the number of TIBOR tenors, and the specifics, the tenors to be reduced and when, will be determined after taking into account various factors including the opinions of TIBOR users.
Ogura/Aoki, Public Relations Division, Planning & Coordination Department