Minutes of the Telbor Committee Meeting 22 October 2007

Committee members: Sharon Lavi, Ilan Viskin, Roy Stein
Guests: Dror Shalit, Michal Rot-Levy, Simcha Hochman
 

1. The committee discussed methods of raising the level of awareness of the uses of Telbor as a product constituting a credit line for large customers and as a deposit/loan between banks for different periods longer than overnight. The use of Telbor interest as a basis for pricing deposits and various loans would certainly serve as a catalyst for the development of the Telbor market and would create a better basis asset for transactions in derivatives - FRA and IRS.
2. Based on the commitment to carry out deals, as set by the committee, credit and deposit transactions are carried out for a period of overnight (ON), and hardly any derivative deals (forward rate agreement) take place. Apparently, is that it is not profitable to carry out such transactions. The committee is therefore considering changing the rules and redefining the commitments to carry out transactions for longer than ON. Two possibilities were raised:
   
   (a) To raise the commitment on the size of FRA deals (currently NIS10 million).
   
   (b) Imposing commitments for FRA deals for periods of 3x6, 9x6 and 9x12 months. Apparently an commitment for such deals is the most effective in maintaining a high level of credibility in the quotes.
   
   It was decided to invite all the representatives of the contributing banks to a meeting to raise other ideas prior to deciding on a change in the rules relating to the commitment to carry out transactions.
3. Ms Hochman of the Bank of Israel presented data derived from the IT system developed to monitor Telbor quotes. The tables showed the extent to which the contributors met the requirement to quote between the hours 10:00 and 17:00. Contributors should make greater efforts to abide by the rules they had adopted and to formulate work procedures that would improve their ability to quote within the specified times and to minimize the technical failures vis-?-vis the Reuter screens. The Telbor Committee will continue to monitor the quotes, and will consider imposing sanctions on those participants who constantly deviate from their undertaking.
   Ms Hochman advised that she had examined the spread between the daily ON monetary interest rate and the Telbor rate, and from August to mid-October this spread had declined to about 12 basis points, similar to the spreads normally seen abroad.
4. The committee has not received further complaints from contributing banks who wished to carry out transactions at the quoted interest rate and were met with no response from the quoting contributor.
5. The committee continues to discuss an issue that was earmarked as one of the prime objectives of the reform, i.e., substituting the Telbor interest rate for the 90-day interest on makam as the underlying asset of traded futures in the Tel Aviv Stock Exchange (TASE). It was agreed that in light of the positive developments in the Telbor market, the TASE will start to promote the matter of the above substitution, but at the same time would await the committee's decision on the question of the commitment to carry out deals (see point 2 above). The reason for this is that under the current rules there is no proper method of preventing the manipulation of the Telbor interest rate, in particular on the expiry dates of futures. It was also decided to organize a meeting with all the representatives of the contributing banks and representatives of the TASE to examine the potential use of traded futures.
6. In accordance with the committee's request at the previous meeting, the Bank of Israel intends to send a letter to the contributing banks asking them to provide information on Telbor-based derivative deals. The Bank will give an commitment to the contributors that it will not divulge their details but only the overall figures. The database would serve a number of purposes:
   
   (a) Cross-sectional analyses of activity in interest-rate-derivatives, and monitoring market barriers and failures.
   
   (b) Follow-up of current developments for purposes of monetary policy.
   
   (c) Grading the list of contributors in the Reuters system according to the extent of their activity.
    
   In the near future the Bank of Israel will send a detailed request for data on Telbor-derivative deals together with an Excel file to be used by the banks for transferring the information to the Bank of Israel.
    
7. I. Viskin, who serves as the Forex representative on the Telbor Committee, advised that the election of the president of Forex would take place on 11 November 2007, and that Dror Zaks, the representative of the First International Bank, will replace him as president. At the next meeting Dror Zaks will be appointed the Forex representative and he will be invited to attend meetings of the Telbor Committee