JBA TIBOR Reform
Updated at August 1, 2022
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 consists of the world's securities supervisors and securities exchanges, 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.
(Plan) [3Q of 2022] (Consultation on JBA TIBOR Fallback Issues)
○ JBATA plans to conduct a consultation on JBA TIBOR Fallback 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 evaluates that the compliance with the IOSCO Principles has been achieved by the First Phase of JBA TIBOR Reform but recognizes that there are some remaining issues for Principle 7 (Data Sufficiency) and Principle 13 (Transition) from the perspective of further enhancing transparency, robustness, and reliability of JBA TIBOR and continues its efforts to solve these issues ("Second Phase of JBA TIBOR Reform").
| IOSCO Principles | Some remaining issues |
|---|---|
| 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. |
・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) |
| 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. |
・While JBATA developed the process and policy for the transition to alternative benchmarks ("fallback rates") in March 2020, appropriate fallback rates for JBA TIBOR have not yet been identified. |
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
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).
[Fallback issues for JBA TIBOR]
- Triggers
(1) Permanent Cessation Triggers
(2) Pre-cessation triggers related to the loss of benchmark's representativeness
(3) Other trigger events
- Benchmark replacement for Japanese Yen TIBOR
(1) Fallback rates
(2) Spread adjustment methodology
- Benchmark replacement for Euroyen TIBOR
(1) Fallback rates
(2) Spread adjustment methodology
Results of the Public Consultation, taking into account the views expressed by stakeholders, is expected to be published by March 31, 2023.
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.
In addition, JBATA expects that the timing of implementing permanent cessation of Euroyen TIBOR, if adopted, would be at the end of December 2024 (see the "Second Phase of JBA TIBOR Reform" above).
* Information on developments related to Euroyen TIBOR will be updated accordingly.
Public consultation on fallback issues for JBA TIBOR
In August 2022, JBATA released the "Public Consultation on fallback issues for JBA TIBOR."
○ Public Consultation on fallback issues for JBA TIBOR
This consultation identified the fallback issues for cash products (loans and bonds) referencing Euroyen TIBOR such as triggers, fallback rates, spread adjustment methodology.
JBATA is engaging in discussions on the possibility of permanent cessation of Euroyen TIBOR, which is currently deemed as the most likely option, and expects that the timing, if adopted, would be at the end of December 2024. Article 51 of the JBA TIBOR Operational Rules requires JBATA, when permanently ceasing JBA TIBOR, to disclose the timing of the cessation, comments submitted through public consultations, and other necessary information at least six months prior to the effective date. JBATA intends to publish another consultation on whether to discontinue Euroyen TIBOR within the fiscal year ending March 31, 2024.
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