New benchmark: A stalemate

Allow me to introduce you to LIBOR, PhiRef, IOSCO, SOFR, RFRs, ORR ISA, BiVal and ISDA. Like you, I am stunned, dazed even, as I bumped into these acronyms, ops they’re more like portmanteaus commonly used in market transactions. I was lost in the forest of these words as my muted source rattled them off passionately. It’s like financial markets101 again as I painstakingly absorb and comprehend these terms to be able to impart the subject of making a new benchmark. Reminds me of my staunch critic, the late National Artist for Literature F. Sionil-Jose, who would time and again tell me that my piece should be easy to read. These portmanteaus come into play as the regulators and the market movers – bank treasurers, chief financial officers up to no less than the presidents, themselves – discuss the new benchmark that will replace PhiRef (Philippine Interbank Reference Rate), the tacit rate derived from FX (foreign exchange) swap transactions using US dollar LIBOR (London Interbank Offered Rate). The exchanges in ideas to determine the right benchmark started shortly after certain interest rate benchmarks came to a close as the global financial market moves away from LIBOR, which has become unreliable due to manipulations undertaken by some European market movers. The plan is to craft a rate that is less prone to manipulation using alternative risk-free rates. To put the situation in its proper perspective, in January 2022 traders stopped using LIBOR settings for US dollar tenors of one-week and two months. While the other tenors: overnight, one, three, six and 12 months continue to be published, but will cease to be used by the end of this month. To prepare the banking industry on the impact of the PhiRef and LIBOR demise, the BSP and the market players have agreed on an interest Rate Swaps Roadmap, first with the adoption of the PhiRef Fallback as early as two years ago. Another step towards this was the BSP issuance of a circular, amending the derivatives regulations, paving the path for an active GS (government securities) repo market as well as completed the independent study in compliance to IOSCO (International Organization for Securities Commission). Now, here’s the thing: the publication, use and administration of the ORR (Overnight Reference Rate) has been scheduled early this year. And the Big But is: the proposal on the ORR in support of the BAP request ”was altogether “rejected” by the BSP. I gathered from snooping around the banking corridors, the BSP, at the onset, expressed “no objection” to the BAP proposed methodology with ISA (Individual Savings Account) issued supplement protocol adopting the PhiRef Fallback. “There was a meeting of the minds between the market practitioners and the BSP.” The buzz going around the BSP corridors and the banking community is that the regulators are instead “considering 28-day and 54-day BSP bills as the alternative rate.” Voila, stalemate ensued. And as I write this piece, the impasse remains. Why the change in alternative rate, you may ask? This is another story altogether, when I will introduce BiVal. With the economy on the uptick and production expansion on the upswing, not to mention the eyes of the international financial community on us, it is important that the impasse be resolved soonest with terms acceptable to both the regulators and the market players. Talkback to me at [sionil731@gmail.com](mailto:sionil731@gmail.com)












Allow me to introduce you to LIBOR, PhiRef, IOSCO, SOFR, RFRs, ORR ISA, BiVal and ISDA.