Minutes of the Telbor Committee Meeting 28 April 2008
Committee members: Harel Cordova, Roy Stein
Guests: Michal Rot-Levy, Dan Ben-Uri, Neil Corney
- In a meeting held with representatives of contributing banks on March 24, 2008, several points were discussed, the main one being a change in the definition of the commitment to carry out transactions when the Telbor rate is set. Based on what was said in the meeting and on written submissions from the banks' representatives, the Telbor Interest Rate Committee determined the following new commitment rules:1
- For a period of one business day--a loan at the quoted rate of interest or a deposit at 12 basis points below the quoted rate of interest, in the amount of NIS 20 million (no change from the original commitment).
- For a period of one week, one month or two months--no commitment.
- For a period of three months to one year--FRA (forward rate agreement) transactions for periods of 6x3, 9x6 and 12x9 months, at a obligatory spread of ±6 basis points from the quoted Telbor interest rate, in the amount of NIS 50 million.
- For a period of a year--An IRS (interest rate swap) transaction for one year at a obligatory interest rate spread of ±6 basis points from the quoted Telbor interest rate, in the amount of NIS 25 million.
The members of the committee consider that these commitment rules will be the most effective, because it will enable a high level of credibility of the quotations to be maintained, without exposing the banks to large credit risks. The contributing bank's commitment is to perform one transaction with any other contributing bank that wishes to carry out such a deal. This rule limits the number of daily transactions to one less than the number of contributing banks.
This decision has the effect of reducing the list of contributing banks, and only those taking the new commitment upon themselves will remain on the list. In accordance with the rules and definitions that provide the framework within which the committee functions, this decision takes effect at the beginning of July. The committee invites other banks, operating in Israel or abroad, to join the list of contributing banks, with a commitment to abide by all the obligations as defined in the rules and definitions.
- Three other items on the agenda were dealt with: i) arranging the list of contributing banks in order of each one's share of the volume of Telbor derivative transactions; ii) defining the list of days when no Telbor interest rate is determined; and iii) defining a uniform method of calculating interest paid on Telbor derivatives. The decisions were:
The Bank of Israel received the data of deals in interest rate derivatives based on the Telbor interest rate from all the contributing banks and published all the information, in accordance with its undertaking in its letter requesting the data. Based on that data a new list of contributing banks was drawn up, to be published (within thirty days, at the beginning of July) on the Reuters screen showing the Telbor interest rates. The appendix to these minutes gives the new list.
The committee defined anew the days on which quotations must be made and the Telbor rate set: all business days in Israel excluding Sundays and excluding four other dates--25 and 26 December, 1 January, and the last Monday in May (in 2008 this is 26 May).Thus the days when no Telbor rate will be determined are known in advance. This rule brings the days when the Telbor rate is set into line with the days when the representative exchange rate is calculated, and thus reduces the uncertainty regarding the days when quotes must be made.
It was decided that the committee would publish the exact method of calculating payment in transactions in Telbor interest rate derivatives, thereby making the features of transactions in this market more uniform. The method of calculation is as follows:
where:
Amount - The value of the deal
ContractRate - The interest rate in the contract
TelborRate - The Telbor rate of interest published on the day prior to the payment date
NoofDays - Number of days to expiry as specified in the contract
DayCountBasis - The exact number of days in that year on which payment is made*
* In accordance with the banking rules and directives.
An example follows: Amount 100 M
Contract rate 5.0%
Telbor rate 4.5%
Number of days 91
Day count basis` 365
Payment in this example 123,274.50
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1 The commitment to carry out a transaction at the quoted rate of interest applies between 11:30 and 12:00 a.m.
APPENDIX
List of quoting banks as approved by the Telbor Interest Rate Committee*