The Bank Bill Swap Rate (BBSW) is a major interest rate benchmark for the Australian dollar and is widely referenced in many financial contracts. Previously, BBSW was calculated from the best executable bids and offers for Prime Bank securities. A major concern over recent years has been the low trading volumes during the rate-set window, the period over which the BBSW is measured.

The new methodology means that the benchmark is anchored to real transactions at traded prices. ASX, the administrator of BBSW, has consulted market participants on this new methodology. In addition, the ASX has recently conducted a successful parallel run of the new methodology against the existing method.

RBA Deputy Governor Guy Debelle said: “The new methodology strengthens BBSW by anchoring the benchmark to a greater number of transactions. This should help to ensure that BBSW remains robust.”

ASIC Commissioner Cathie Armour said: “A transaction-based BBSW supports the market’s trust in the robustness and reliability of BBSW.”

“ASIC and the RBA expect all bank bill market participants—including the banks that issue the bank bills, as well as the participants that buy them—to adhere to the ASX BBSW Guidelines and support the new BBSW methodology. The rate-set window is the most liquid period in the bank bills market, and market participants are therefore likely to get the best outcomes for their institutions and their clients by trading during this time.”

“We expect market participants to put in place procedures so that as much trading as possible happens during the rate-set window.”