KUALA LUMPUR: Bank Negara Malaysia today has launched the Malaysia Overnight Rate (MYOR) as the new alternative reference rate (ARR) for the country.
Globally, ARRs are being introduced to improve the integrity of financial benchmark rates as part of a transition to transaction-based rates, in line with the London Interbank Offered Rate reforms after the global financial crisis.
Bank Negara, in a statement today, said MYOR would run in parallel with the existing Kuala Lumpur Interbank Offered Rate (Klibor) with periodic reviews.
This was to ensure that the financial benchmark rates remain robust and reflective of an active underlying market, it added.
The central bank said this multiple-rate approach was supported by the Financial Stability Board (FSB) and adopted by many other jurisdictions.
"The availability of two financial benchmark rates provides market participants with the flexibility to choose the rate that best suits their needs and facilitates the development of MYOR-based products.
"The offering of MYOR-based products will provide a wider array of hedging instruments that will support additional risk management strategies," it added.
In conjunction with the launch, Bank Negara published the MYOR Policy Document, incorporating several key features and governance standards developed in collaboration with the Financial Markets Committee.
Bank Negara will also discontinue the publication of the two and 12 months Klibor tenors, which are the least referenced rates in the market for financial contracts, on January 1, 2023.
"The remaining one, three and six-month KLIBOR tenors, which continue to reflect an active underlying market, will be reviewed in the second half of 2022. Any updates from the review will be communicated thereafter," it said.
The FMC will engage the International Swaps and Derivatives Association to ensure continuity of Klibor derivatives contracts in the event of a temporary or permanent discontinuation of Klibor publication.
As part of ongoing efforts to further develop the Islamic financial market, Bank Negara, in collaboration with FMC and the Islamic Market Technical and Development Committee, will develop a new Islamic benchmark rate to replace the Kuala Lumpur Islamic Reference Rate by the first half of 2022.