NZFBF Consultation Two – Viable Benchmark Replacement Options

NZFBF Benchmark Update


Benchmark Update No: 012024

Date: 23 February 2024

NZFBF Consultation Two – Viable Benchmark Replacement Options


New Zealand Financial Markets Association (NZFMA), the Industry Association for wholesale financial markets and the facilitator of the provision of key New Zealand financial benchmarks, and its subsidiary New Zealand Financial Benchmark Facility Limited (NZFBF), as the benchmark administrator, have today issued Consultation Two – Viable Benchmark Replacement Options.

Consultation Two seeks submissions on the preferred viable interest rate benchmark option, the OCR, to potentially replace BKBM, as well as potential reforms of the BKBM process.

Consultation Two follows the initial consultation conducted by NZFBF between June and August 2023. Consultation One can be found here and Consultation Two can be found here.

Since Consultation One closed in August 2023 NZFBF has been meeting with the BKBM Working Group (WG) to analyse the responses received, discuss how the feedback from Consultation One would impact the next steps, and to finalise the Consultation Two document. NZFBF’s work on Consultation Two has been guided by the objective that benchmarks should comply with the FMA’s regulations for Benchmark Administrators (FMC Regulations 2014; Schedule 28), align with the IOSCO Principles for Financial Benchmarks (to the extent applicable) and global benchmark developments.

BKBM will continue to operate as usual, and no decision has been made to cease its operation.

Consultation Two content
Consultation Two provides an anonymised summary of Consultation One and seeks responses on the following:

  • The proposed viable replacement option, the OCR.
  • OCR Benchmark administration.
  • OCR Benchmark methodology.
  • Proposed OCR benchmark convention (for wholesale derivatives).
  • Development of a term forward-looking benchmark (for limited products).
  • Potential BKBM reform.
  • Fallback benchmark rate.
  • Proposed options:
    • Retain BKBM (status quo).
    • Retain a reformed BKBM.
    • Transition to an overnight risk-free rate, the OCR, and retain a reformed BKBM for a limited set of financial products.
    • Transition to an overnight risk-free rate, the OCR, and implement a new risk-free term forward-looking benchmark for a limited set of financial products. Reform BKBM for transition and cease once new benchmarks have been established.

Why are we undertaking consultation on viable benchmark replacement options to BKBM?
Traded volumes in the BKBM rate-set window have been in gradual decline for several years increasing the instances where BKBM’s determination requires the use of executable bids and offers. The reduction in transaction volumes is not desirable.

International jurisdictions, such as the US and the UK, have moved to risk-free or near risk-free benchmark rates which are determined using a market that has large transaction volumes. While New Zealand interest rate markets are smaller than most of their international counterparts, New Zealand would ideally have an interest rate benchmark that has daily transaction levels greater than those currently seen in BKBM. There might be some merit in New Zealand’s key benchmark aligning with the new risk-free or near risk-free benchmarks in other key jurisdictions.

This work does not constitute a public statement, nor publication of information, that current benchmarks have ceased, or will cease.

How can you contribute?
NZFBF is seeking submissions from all benchmark users and other interest parties. Submissions on Consultation Two can be provided by:

  • Emailing us:
    Subject line: BKBM Benchmark – Consultation Two on Viable Replacement Options
  • Sending a letter to:
    John Groom
    General Manager
    New Zealand Financial Benchmark Facility Limited
    PO Box 641
    Wellington 6011

The closing date for submissions is 3 May 2024.

NZFBF welcomes responses to Consultation Two and will consider all comments received. This consultation document contains a number of questions. Responses to these questions are most useful if they contain a clear rationale and, where applicable, suggest an alternative. Please comment on any or all the questions that are relevant to you.

NZFBF encourages recipients of this benchmark update and consultation document to share the information with clients and other interested parties, to help ensure as much as possible the widest engagement, reach and resulting responses.

Submission Results
NZFBF will keep all individual submissions confidential. It will however publish an anonymised summary of the submissions in line with the timeframes provided in next steps, part eleven of Consultation Two.

NZFBF, in consultation with the WG, will collate and consider the responses to Consultation Two. This information will be shared with the NZFBF and NZFMA Boards.

NZFBF expects to make a further statement on this process in the third quarter 2024, including an anonymised summary of the submissions received for Consultation Two. A summary of the next steps can be found in part eleven of Consultation Two.

Contact Us

If you have any questions or comments, please email or phone (+64 4 333 1377) the NZFBF team.