Minutes of the Telbor Committee meeting held on July 15, 2009

Present: Committee Members: Sharon Lavi, Harel Cordova, Guenia de Mayo, and Roy Stein
Guests: Amit Lowenstein, Dan Trister, Zahi Elias, Guy Fischer, Michal Rotlevy, Tzach Sharon, Liraz Rafaely and Simcha Hochman

1. The main topic discussed in the meeting was the reliability of quotations, and particularly that of the three-month rate, following the discussion of this issue at the previous meeting of the Committee (February 2009), and in light of the unclear changes recorded recently in the three-month Telbor interest rate. It should be noted that according to the existing commitment to perform transactions as was decided by the Committee, there is currently no anchor for the three-month Telbor interest rate. Thus, the meeting discussed the addition of another commitment to carry out transactions for this term, with several banks proposing the addition of a commitment for a three-month loan/deposit, or alternatively to add a commitment to perform a 3-month overnight index swap (OIS) transaction.
   
   We note that a commitment to an OIS-type transaction creates a connection between the money market (overnight loans and deposits) and the derivatives market, and would thereby result in the quoted three-month interest rate (and hence also the rate for longer periods) being strongly affected by the short-term interest rate and expectations regarding its development, and would thus render it impossible to factor in the pricing of credit risks inherent in the money market. Following a discussion in which the guests participated, in the course of which different views were expressed about the problems of the proposals to add a commitment to perform transactions, the Committee reached the following conclusions:
   
   An additional commitment to perform a transaction in derivatives should be avoided as far as possible, in light of the fact that such commitments create an interest rate curve that reflects the derivatives curve and not the curve of the price of money, although the participants were of the view that the spread between them was not a large one, despite the global crisis.
   
   Attempts should be made to promote the development of the money market, and in particular the framework of inter-bank credit for periods of up to a year. With that in mind, the Committee intends to initiate meetings with representatives of asset and liability management from each of the contributing banks. The meetings will be coordinated by representatives of the trading rooms, who would also participate in them.
2. Simcha presented data derived from the information system developed in the Bank of Israel to monitor the Telbor quotations. The data showed that there was a significant improvement in the first half of 2009 in the extent to which contributors were honoring their quotation commitments, and it is currently at a satisfactorily high level. The Committee emphasizes that at the beginning of the month there was a change in Reuters' computer system, and banks' quotations are kept till the start of the next business day, and the commitment to quotation times as set by the Committee, between 10:00 and 17:00 is observed automatically. At the same time, Reuters developed a warning system: at 10:30 there is a warning if at least one of the interest rate quotes of the eight in the various periods has not been updated. At 11:00 there is a warning if there is an exceptional gap between a bank's quotation and the theoretical temporary average. The representatives of the contributing banks are must ensure that they do not receive such warnings.
3. The Committee is interested in hearing the views of the contributing banks' back-offices on the Committee's proposed rule about the situation when the date set for payment and/or for setting the floating interest rate for the next period is a date on which no Telbor interest rate is set.
4. Representatives of Barclays have submitted a request to join the list of contributing banks, having accepted all the rules and commitmentsas determined by the Committee.
   The Committee decided to agree to the request, and Barclays will join the list with effect from 17 August 2009.
5. Two contributing banks, HSBC and Deutsche Bank, have transferred the activity of their trading rooms to London, and therefore, out of considerations of confidentiality, they have not passed details of transactions as required. It has thus not been possible to examine the changes in the extent of activity on the Telbor market based on the information currently available. The HSBC representative will try to clarify the matter of confidentiality
   
   In addition, the Committee is examining the possibility of obtaining data on the value of transactions performed between foreign banks, in order to improve the monitoring of the development of the total market.