Bank Negara Malaysia (The Bank) is pleased to announce the launch of the MYOR as the new alternative reference rate (ARR) for Malaysia. 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 (LIBOR)^[1] reforms after the Global Financial Crisis. The introduction of ARRs aims to facilitate usage of benchmark rates that are more robust and based upon transactions in active, liquid markets. In Malaysia, the MYOR will run in parallel to the existing Kuala Lumpur Interbank Offered Rate (KLIBOR) with periodic reviews to ensure that the financial benchmark rates remain robust and reflective of an active underlying market. This multiple-rate approach is supported by the Financial Stability Board (FSB)^[2] 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.

In conjunction with the launch, the Bank has published the MYOR Policy Document, which incorporates the following key features and governance standards developed in collaboration with the Financial Markets Committee (FMC)^[3] after a robust public consultation process:

• The MYOR will be administered and calculated by the Bank as the volume-weighted average rate of unsecured overnight Ringgit interbank transactions, including the Bank’s overnight monetary operations (excluding Standing Facilities)
• The publication of MYOR for a given Kuala Lumpur business day will be at 10 a.m. on the following business day on the Bank’s website.
• The Bank will conduct periodic reviews of the MYOR to ensure it remains robust and representative of conditions in the underlying market.

The Bank will also discontinue the publication of the 2- and 12-month KLIBOR tenors, which are the least referenced rates in the market for financial contracts, on 1 January 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. The FMC will engage the International Swaps and Derivatives Association (ISDA) to ensure continuity^[4] 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, the Bank, in collaboration with the FMC and the AIBIM-FMAM^[5] Islamic Market Technical and Development Committee (IMTDC), will develop a new Islamic benchmark rate to replace the Kuala Lumpur Islamic Reference Rate (KLIRR) by the first half of 2022.

For further information on MYOR and the overall roadmap for Malaysia’s financial benchmark reform efforts, please refer to the attachments below.

For enquiries, members of the public may email the Financial Benchmark Review team at [email protected].

References:

• Malaysia Overnight Rate (MYOR) and aggregate volumes
• Malaysia Overnight Rate (MYOR) Policy Document
• Kuala Lumpur Interbank Offered Rate (KLIBOR) Rate Setting Policy Document
• Malaysia Overnight Rate (MYOR-i) Exposure Draft
• Financial Benchmark Reform Roadmap

^[1]  LIBOR is a widely used financial benchmark rate for short-term interest rates, based on the estimated funding rate by large, internationally active banks in the wholesale, unsecured funding market.

^[2] The FSB is an international body that promotes international financial stability by monitoring and making recommendations about the global financial system.

^[3] The FMC is a committee established by the Bank in May 2016 and comprises representatives from the Bank, financial institutions, corporations, financial service providers and other institutions which have prominent roles or participation in the financial markets.

^[4] KLIBOR will be included in a new ISDA Interbank Offered Rate (IBOR) Fallbacks Protocol, which will provide a standardised solution to incorporate robust fallback provisions into legacy KLIBOR derivatives contracts. Fallback provisions for the active one-, three- and six-month KLIBOR tenors will be based on the ISDA methodology and published by Bloomberg, while the 2- and 12-month tenors will incorporate generic fallbacks that will effectively be determined either through mutual agreement between the parties or by the calculation agent.

^[5]  AIBIM = Association of Islamic Banking and Financial Institutions Malaysia

   FMAM = Financial Markets Association Malaysia