Minutes of the Telbor Committee Meeting Held on February 9, 2009

Committee members: Sharon Lavi, Harel Cordova, Guenia de Mayo, Roy Stein
Guests: Michal Rot-Levy, Guy Fischer, Aharon Navon
 

1. Pursuant to the reorganization that the Bank of Israel has been undergoing in recent months, several changes have taken place in the Bank's functions. As an outcome of the reorganization, the Bank's representative, Roy Stein, now belongs to the Capital Market area of the Research Department. Therefore, it was decided to add a representative of the Market Operations Department, Guenia de Mayo, to the Committee.
2. Roy presented data produced by the information system that the Bank of Israel developed for the monitoring of Telbor quotations. The data show that contributing banks were slightly better about honoring their commitment to the quotations but are still not good enough. "Dishonorable mention" goes to Discount Bank's commitment, which did not appear in the Reuters system for seventeen days in 2008 and was late in first entry (first quoted after 11:00 a.m.) for forty-seven days. The other banks were absent five days on average in 2008 and late around fifteen times. The Committee wishes to emphasize that the quotation times that it determined are from 10:00 to 17:00; the contributing banks should strictly observe this commitment, too. The Telbor Interest Rate Committee will continue to monitor the quotations and consider bringing sanctions against banks that do not honor their commitments consistently.
3. The Bank of Israel received the data on transactions in interest rate derivatives based on the Telbor interest rate from all contributing banks and has published the aggregate information, in accordance with its undertaking in its letter requesting the data (Appendix 2). Based on these data, a new list of contributing banks was drawn up, to be published (within thirty days, in the middle of March) on the Reuters screen that shows the banks' quotations and the fixing Telbor interest rates. The new list appears in the Appendix to these minutes.
4. One of the participants in the meeting proposed imposing an additional transaction performance commitment for the contributing banks: a three-month Over Night Index Swap (ONIS). As a result of this commitment, the short-term rate and expectations about its behavior will have a stronger influence on the quoted three-month interest rate (and also, commensurably, on the rate to other long terms). The Telbor will get more credibility from customers' standpoint and allow credit facilities to be set as a function of the Telbor rate. Several doubts were expressed about this new commitment, particularly in view of the current crisis. At this time, many questions are being asked around the world about the difference between the money market and the derivatives market, as reflected in different pricing of interest rates. Therefore, a genuine difficulty arises in adding a commitment that creates a connection between the money market (overnight lending and deposits) and the derivatives market. It was decided to continue discussing the proposal at the Committee's next meeting, by which time we will take an interest in the opinion of the contributing banks' representatives.
5. additional matters on the agenda were concluded:

Contributing banks' commitment to the performance of transactions (in the 11:30-12:00 time slot)-when a contributing bank receives several simultaneous transaction requests, as defined by the Committee, the bank must transact all requests at the same price.1 Concurrently, the bank may amend its quotations and all new applications will be performed at the new interest rate.

The Committee emphasizes that fixing will not be performed and payments will not be transferred on days when no Telbor rates are fixed.

Material glitches-calculation of the interest rate as set by the Committee shall be based on quotations from at least five contributing banks. If fewer than five quotations appear on the Reuters screen, the determining rate shall not be set automatically by the Reuters system; instead, it will be published by the end of the day at the Committee members' responsibility.

It was proposed to require the main distributor of information (Reuters) to monitor contributing banks' quotations and to address any problem that arises, as defined by the Committee, to the banks' contact people.

The Reuters system has many technical bugs and the banks' quotations are not received on the screen. It was decided that representatives of the Committee will meet with representatives of Reuters to describe the problems that these glitches cause and to seek solutions within a reasonable time frame.

____________________________________________
 1 This is unlike the Committee's response to a complaint that it received about Deutsche Bank's refusal to perform a transaction. (See email sent on Dec. 4, 2008.) The reply given in response to the complaint is nullified; accordingly, the maximum commitment is NIS 350 million (insofar as all contributing banks turned to a specific contributing bank).
 

APPENDIX 1
List of Quoting Banks as Approved by the Telbor Interest Rate Committee*

This list will go into effect in the middle of March 2009.

APPENDIX 2