Discontinuation of LIBOR

The Bank of England and the Finance Conduct Authority (FCA) in the UK recently updated the road map for replacing LIBOR with alternative reference rates (ARR). In particular, issuance of cash products linked to sterling LIBOR is to cease by the end of Q3 2020 and LIBOR referencing contracts must be significantly reduced by Q1 2021. The FCA has stressed that there will be no LIBOR publication after end-2021.

The HKMA issued a circular in March 2019 urging authorised institutions (AIs) to prepare for the transition associated with interest rate benchmark reform, including the discontinuation of LIBOR. As LIBOR is used extensively in the Hong Kong banking industry, AIs should have already started identifying and evaluating key risks arising from the reform and formulating firm-wide action plans.

Co-existence of HIBOR and HONIA set for Hong Kong

The HKMA indicated that it currently has no plan to discontinue HIBOR, as the Treasury Markets Association (TMA) acknowledged HIBOR is a widely recognised benchmark. A multiple-rate approach is proposed for Hong Kong, with the co-existence of HIBOR and the Hong Kong Dollar Overnight Index Average (HONIA).

In December 2019, the TMA published its consultation conclusion (summarised below) about proposed technical refinements to HONIA as regards HONIA serving as an ARR for HIBOR.

Aspect

Existing practice

Reform conclusion

1

Data source

Transaction data is collected from money brokers

Transaction data to be directly collected from banks as primary source

2

Reporting window

Between 09:00 and 16:00 on every Hong Kong business day

Extended to between 08:00 and 16:00 on every Hong Kong business day

3

Publication time

This facilitates the use of HONIA for discounting and price alignment interest calculation.