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LINDEX - Benchmarking Emerging Market Index Rates

14 Jul 2002

General Since December 2000 the BBA in co-operation with Reuters has been benchmarking South African Rand emerging market interest rates on a daily basis. This complements the existing BBA LIBOR series. LINDEX Rates can be obtained from the Reuters pages LINDEX01. The BBA plan to add other LINDEX currencies in due course.

An individual LINDEX contributor Panel Bank contributes a bid/offer spot in the currency for the relevant periods for reasonable market size at 11.00hrs London time. Rates are released at 12.00 London time. Contributor banks input their rate on each London business day without reference to prices contributed by other Contributor Panel banks. ZAR LINDEX will not be benchmarked if less than 8 contributions are received.

After calculating the mid-point from each data point submitted, the spot and forward rates for each maturity will be ranked and the middle two quartiles averaged to calculate the mid-point average. The implied interest rate benchmark is calculated using the formula:

where: forward = spot + forward points
spot = the appropriate $/Rand spot rate (Rand per $)
RUS% = the USD BBA LIBOR rate for the appropriate maturity

Maturities:
BBA ZAR LINDEX rates are benchmarked for the following maturities:
Spot
SW
1 month
3 month
6 month
9 month
12 month

BBA ZAR LINDEX contributor banks
ABSA
Barclays
BNP Paribas
Chase
CSFB
Deutsche Bank
HSBC
Investec
Nedbank
RBS Group
Standard Bank
Standard Chartered Bank

INSTRUCTIONS TO BBA LINDEX CONTRIBUTOR BANKS:
Instructions to Contributor Banks

  1. An individual BBA LINDEX Contributor Panel Bank will contribute:
    • a bid/offer spot rate for the LINDEX currency concerned;
    • bid/offer forward points in that currency for the relevant periods;

      for reasonable market size at 1100hrs, London time

  2. Contributor banks will input their rates on each London business day without reference to prices contributed by other Contributor Panel Banks.
  3. Spot forward rates shall be contributed on a certain for uncertain basis, with USD as the certain currency and to the number of decimal points typical for the currency market in question.
  4. LINDEX Contributor Panels shall comprise at least 8 Banks chosen to reflect their expertise in the currency concerned.
  5. Contributor Panel Banks will submit spot and forward FX contract outstandings data for periods of upto 1 year on each quarter end date. This information will be held privately and confidentially by the BBA and used in decision making about the LINDEX Panel composition. Contribution efficiency data will also be monitored.
  6. After calculating the mid-point from each data point submitted, the spot and forward rates for each maturity will be ranked and the middle two quartiles averaged to calculate the mid-point average.


The BBA LINDEX Process

  1. The Designated Distributor shall calculate the implied interest rates, using the USD BBA LIBOR Fixing, from the averaged mid-point FX data, according to the formula:

    and release the resulting LINDEX benchmark as soon after 1200 as is practicable.

  2. Individual LINDEX contributor bank rates shall be released at the same time, to ensure transparency.

  3. Maturity dates for the specific LINDEX periods shall be according to the ISDA modified following business day convention.

  4. LINDEX benchmark implied interest rates shall be rounded to two decimal places.

  5. If an individual LINDEX Contributor Bank ceases to comply with the spirit of these 'Instructions to BBA LINDEX Contributor Banks', the BBA may issue a warning requiring the Contributor Bank to remedy the situation or, at its sole discretion, exclude the Bank from the LINDEX Contributor Panel.

  6. LINDEX data shall be supplied by the geographical business unit of the Contributor Bank most active in the offshore FX market in the currency concerned.

  7. The LINDEX benchmark of interest rates is based on Foreign Exchange forwards. At a future date this benchmarking may be succeeded by a Fixing based on inter-bank deposit rates, or by some other measurement of interest rates. It is the intention of the British Bankers' Association that any such succession would take place only after consulting interested market participants. However, in the event that such succession becomes necessary at short or little notice the BBA reserves the right to alter or replace LINDEX, or a particular currency benchmarking thereof at any time and in any manner of its choosing, at its absolute discretion.
 
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