JBA TIBOR Reform
Updated on August 1, 2023
This website introduces our efforts taken in relation to the "First Phase of JBA TIBOR Reform" implemented in July 2017 to enhance the transparency, robustness, and reliability of JBA TIBOR and subsequent the "Second Phase of JBA TIBOR Reform" that has undertaken with the aim of further enhancing the robustness.
JBA TIBOR Reform
First Phase of JBA TIBOR Reform
In light of investigations and enforcement actions regarding attempted manipulation of LIBOR in 2012, the International Organization of Securities Commissions ("IOSCO"), which is the international body that is comprised of the securities and financial market regulatory organizations from around the world, published the Final Report on Principles for Financial Benchmarks (commonly known as the "IOSCO Principles") in July 2013, requesting the administrators of major interest rate benchmarks (e.g. LIBOR, TIBOR) to comply with these 19 principles.
In July 2014, the Financial Stability Board ("FSB") released the Reforming Major Interest Rate Benchmarks, recommending that it should be necessary to create a mechanism that eliminates the possibility of arbitrary judgment by reference banks as much as practicable and reform benchmarks to enhance their transparency, robustness, and reliability.
Based on these international requests and recommendations, the General Incorporated Association JBA TIBOR Administration ("JBATA") established in April 2014 implemented the "First Phase of JBA TIBOR Reform" in July 2017 after three rounds of public consultations. One of the key concepts under this reform was to standardize and clarify the calculation/determination processes of submission rates to have JBA TIBOR be more anchored in actual transactions.
Second Phase of JBA TIBOR Reform
JBATA refers to those initiatives implemented following the First Phase of JBA TIBOR Reform primarily for further enhancing the robustness to resolve certain issues with respect to IOSCO Principles 7 and 13, as the "Second Phase of JBA TIBOR Reform." Key points of JBATA's efforts taken to date are as summarized below.
[October 2018] (Public consultation on the approach for integrating Japanese Yen TIBOR and Euroyen TIBOR)
○ In consideration of prolonged downsizing of the underlying markets, JBATA consulted on the approach for integrating Japanese yen TIBOR and Euroyen TIBOR.
[May 2019] (The option to discontinue Euroyen TIBOR gained the most support.)
○ Given that "retaining Japanese yen TIBOR and discontinuing Euroyen TIBOR" was the most supported option as a result of the consultation above, the following two points were announced.
(i)Assuming the option as the most likely option, JBATA will devise the specifics of the reforms while paying attention to developments in the financial markets and ongoing domestic and international policy discussions, such as the cessation of LIBOR.
(ii) The JBATA envisions a preparation period of approximately two years following the permanent cessation of LIBOR.
[March 2021] (Announcement of the expected timing of Euroyen TIBOR discontinuation, if implemented)
○ Based on a statement issued by the regulator of LIBOR regarding future permanent cessation or loss of representative of LIBOR, JBATA announced that the expected timing of discontinuing Euroyen TIBOR, if implemented, would be at the end of December 2024. It also announced that it would take actions to discuss on fallback issues.
[August 2022] (Public Consultation on fallback issues for JBA TIBOR)
○ JBATA consulted on fallback issues for JBA TIBOR.
[March 2023] (Results of Public Consultation on fallback issues for JBA TIBOR)
○ Based on responses from 11 respondents, JBATA described its position on fallback issues (i.e. triggers, benchmark replacement) for JBA TIBOR and its views on the introduction of fallback provisions in contracts referencing JBA TIBOR.
○ In addition, it is mentioned that JBATA intends to publish another consultation on whether to permanently cease to publish Euroyen TIBOR in the first half of the fiscal year ending March 31, 2024 while its results are expected to be published in the second half of the fiscal year.
[August 2023] (Public Consultation on permanent cessation of Euroyen TIBOR and related issues)
○ JBATA consulted on permanent cessation of Euroyen TIBOR and related issues.
Background: Reporting on compliance with the IOSCO Principles
Pursuant to Article 2(2) of the JBA TIBOR Operational Rules, JBATA reviews the status of compliance with the IOSCO Principles and discloses its overview on an annual basis (see the link below for details).
JBATA has evaluated that compliance with the IOSCO Principles has been achieved by the First Phase of JBA TIBOR Reform. As described in this material, of some remaining issues recognized for IOSCO Principle 7 (Data Sufficiency) and Principle 13 (Transition) from a perspective of further enhancing the transparency, robustness, and reliability of JBA TIBOR, JBATA assesses that the issue for Principle 13 has been resolved through the publication of "Results of Public Consultation on fallback issues for JBA TIBOR" and the subsequent revision of relevant policy.
| IOSCO Principles | Current Status |
|---|---|
| Principle 13 Transition Administrators should have clear written policies and procedures, to address the need for possible cessation of a Benchmark. Administrators' written policies and procedures to address the possibility of Benchmark cessation could include criteria to guide the selection of a credible, alternative Benchmark and other factors, if determined to be reasonable and appropriate by the Administrator. |
<Fully Complied> ・ JBATA developed the process and policy for the transition to alternative benchmarks ("fallback rates") in March 2020. |
| Principle 7 Data Sufficiency The data used to construct a Benchmark determination should be sufficient to accurately and reliably represent the Interest measured by the Benchmark. |
<Complied> ・The low proportion of submission rates of Euroyen TIBOR determined by using data of the underlying market (i.e. the Japan Offshore Market) and the shrink in size of the Japan Offshore Market for a long time compared to the Japan unsecured call market (i.e. the underlying market of Japanese Yen TIBOR) |
Survey on JBA TIBOR Exposures
As part of the "Second Phase of JBA TIBOR Reform," JBATA conducted "Survey on JBA TIBOR Exposures" (reference date: End-2021), covering a wide range of financial institutions, including banks, securities companies and insurance companies, with a view to understanding the actual conditions of financial instruments and transactions referencing JBA TIBOR and reflecting the usage status into the future discussions.
Key results of the survey are as summarized in the table below.
The amounts outstanding of contracts referencing Japanese Yen TIBOR are 119.8 trillion yen of Loans, 400 billion yen of Bonds, and 180.4 trillion yen of notional amounts of Derivatives.
On the other hand, the amounts outstanding of contracts referencing Euroyen TIBOR are 3.8 trillion yen of Loans, 4 billion yen of Bonds, and 347.7 trillion yen of notional amounts of Derivatives.
For details, please see "Key Results of the Survey on JBA TIBOR Exposures".
| Japanese Yen TIBOR | Euroyen TIBOR | |||
|---|---|---|---|---|
| Amount outstanding | Number of contracts | Amount outstanding | Number of contracts | |
| Loans | 119.8 | 290.8 | 3.8 (1.6) | 2.7 (1.4) |
| Bonds (Liabilities) | 0.4 | 0.1 | 0.004 (0.004) | 0.01 (0.01) |
| Derivatives | 180.4 | 47.2 | 347.7 (206.1) | 30.7 (21.5) |
*1 Amount outstanding (or notional amount in the case of Derivatives): in trillions of yen, Number of contracts: in thousands
*2 Figures in parenthesis presented in "Euroyen TIBOR" column indicate the amounts outstanding and number of contracts with maturities beyond the end-2024.
Public consultation on fallback issues
In August 2022, JBATA released the "Public Consultation on fallback issues for JBA TIBOR."
○ Public Consultation on fallback issues for JBA TIBOR
JBATA undertakes this public consultation to seek to solicit comments from a wide range of market participants on fallback issues for cash products (loans and bonds) referencing JBA TIBOR as below (consultation period: September 30, 2022).
In March 2023, JBATA released the "Results of Public Consultation on fallback issues for JBA TIBOR"
○ Results of Public Consultation on fallback issues for JBA TIBOR
Based on responses from 11 respondents, JBATA summarizes its positions on respective fallback issues as follows.
*JBATA's position will not have any binding effects on individual contracts referencing JBA TIBOR, and JBATA does not recommend any particular rates and methodologies. In addition, it does not intend to preclude the contracting parties from reaching an agreement on the terms and conditions other than its positions.
Additionally, the views on the introduction of fallback provisions in contracts referencing JBA TIBOR are as provided below for each benchmark based on the comments received for the "Public Consultation on fallback issues for JBA TIBOR".
<Introduction of fallback provisions for contracts referencing Euroyen TIBOR>
Given that the permanent cessation at the end of December 2024 is under consideration for Euroyen TIBOR, its users should promptly consider, as an option, the introduction of fallback provisions for Euroyen TIBOR contracts that will mature after the end of December 2024.
<Introduction of fallback provisions for contracts referencing Japanese Yen TIBOR>
While the permanent cessation of Japanese Yen TIBOR has not been discussed, its users should consider the introduction of fallback provisions for those contracts referencing Japanese Yen TIBOR from the perspective of enhancing the stability and robustness of contracts.
However, given some feedback which raised a concern about operational burdens for incorporation of fallback provisions into a large amount outstanding and number of contracts referencing Japanese Yen TIBOR, we also consider that its users take a practicable approach such as starting first from "new" Japanese Yen TIBOR contracts.
In the "Publication of Results of Public Consultation on Fallback Issues for JBA TIBOR by JBA TIBOR Administration" published by Financial Services Agency (JFSA) in March 2023, it is mentioned that JFSA "expects the introduction of fallback provisions into contracts referencing JBA TIBOR to be advanced based on the Results of the Public Consultation and will support these efforts as needed" in accordance with our views described above.
Public consultation on permanent cessation of Euroyen TIBOR and related issues
In August 2023, JBATA released the "Public Consultation on permanent cessation of Euroyen TIBOR and related issues."
○Public Consultation on permanent cessation of Euroyen TIBOR and related issues(Consultation period:September 30, 2023)
JBATA undertakes this public consultation to seek to solicit comments from a wide range of market participants on whether to permanently cease Euroyen TIBOR which is currently deemed as the most likely option and its timing, if adopted.
As a practical issue related to the permanent cessation of Euroyen TIBOR, the public consultation also seeks comments on the timing to cease entering into new contracts for cash products (loans and bonds) and interest rate swaps referencing Euroyen TIBOR.
Developments related to Euroyen TIBOR
Based on the result of past public consultation, JBATA continues to discuss the possibility of permanent cessation of Euroyen TIBOR as the most likely option.
In August 2023, JBATA initiates the public consultation on the permanent cessation of Euroyen TIBOR to seek to solicit comments from a wide range of market participants on whether to permanently cease Euroyen TIBOR which is currently deemed as the most likely option and its timing, if adopted (see the "Second Phase of JBA TIBOR Reform" and "Public consultation on permanent cessation of Euroyen TIBOR and related issues" above).
* Information on developments related to Euroyen TIBOR will be updated accordingly.
Next steps on Euroyen TIBOR
Article 51 of the JBA TIBOR Operational Rules requires JBATA, when permanently ceasing JBA TIBOR, to disclose the timing of the cessation, its reason, the feedback and comments submitted through public consultations and other necessary information at least six months prior to the effective date.
Based on Article 51 of the JBA TIBOR Operational Rules, JBATA plans to publish the results of the "Public Consultation on permanent cessation of Euroyen TIBOR and related issues" by March 31, 2024.
The results of the public consultation will also provide JBATA's position on the following issues, based on comments submitted during the public consultation and other relevant information.
・Whether to permanently cease Euroyen TIBOR.
・When to implement the permanent cessation of Euroyen TIBOR, if adopted.
If the results of the public consultation indicate JBATA's determination to permanently cease Euroyen TIBOR, publishing such results would be intended to constitute a "Permanent Cessation Trigger."