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UK benchmark rewrite threatens access to Asian NDF fixings

Created at 13 Aug · 3:36 AM1 source↑ Market-relevant
IN SHORT

UK regulators are proposing a new benchmark regime that could restrict access to popular Asian currency non-deliverable forward (NDF) fixings for traders. The proposed Special Authorised Benchmark Regime (SABR) may not align with international standards, potentially excluding UK-based traders.

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Who's Involved

HM Treasury
proposing a new benchmark regime in the UK

↳ Why This Matters

The proposed changes could significantly disrupt trading for UK-based NDF participants, potentially forcing them to seek alternative markets or methods for accessing Asian currency fixings, thereby impacting liquidity and market access.

Key facts

  • HM Treasury is proposing a new Special Authorised Benchmark Regime (SABR) to replace the UK's current benchmark regulation.
  • This change could prevent UK-based non-deliverable forward (NDF) traders from accessing fixings for popular Asian currencies.
  • The UK is the only country currently operating under the unreformed version of the EU's Benchmark Regulation.

Traders of non-deliverable forwards (NDFs) in the UK may lose access to fixings for popular Asian currencies if these are not exempted from the country's proposed new benchmark regulation. HM Treasury has put forward plans to replace the current benchmark rules with its own Special Authorised Benchmark Regime (SABR).

The UK is unique in its continued use of an unreformed version of the EU's Benchmark Regulation. The proposed SABR could potentially exclude UK-based traders from using these critical offshore rates, impacting their ability to operate in the Asian NDF market.

Frequently asked questions

Non-deliverable forwards (NDFs) are currency derivatives used to hedge against currency risk in markets where full convertibility is restricted. The settlement is made in a major currency, like US dollars, rather than the local currency.

The EU's Benchmark Regulation (BMR) establishes a framework for the critical benchmarks used in financial markets to ensure their integrity and prevent market abuse. It sets out rules for benchmark administrators, methodologies, and the use of benchmarks within the EU.

The UK is reportedly the only country still operating under the unreformed version of the EU's Benchmark Regulation, prompting the need for its own domestic regime.

What Happens Next

01The outcome of HM Treasury's proposed Special Authorised Benchmark Regime (SABR) will determine access to Asian NDF fixings.

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How It Developed

HM Treasury has proposed replacing the UK's current benchmark regulation with its own Special Authorised Benchmark Regime (SABR).
The new regime could threaten access to popular Asian currency non-deliverable forward (NDF) fixings for UK-based traders.
The UK is currently the only country using an unreformed version of the EU's Benchmark Regulation.

Sources

T1
UK’s benchmark rewrite threatens access to Asia NDF fixingsRisk.net

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