BBA LIBOR: Definition and Conventions

THE BBA LIBOR FIXING

BBA LIBOR is the British Bankers' Association LIBOR fixing of the London Inter-Bank Offered Rate. It is based on offered inter-bank deposit rates contributed in accordance with the Instructions to BBA LIBOR Contributor Banks. The BBA will fix BBA LIBOR and its decision shall be final. The BBA consults on the BBA LIBOR rate fixing process with the BBA LIBOR Steering Group. The BBA LIBOR Steering Group comprises leading market practitioners active in the interbank money markets in London.

Contributor Panels shall comprise at least 8 Contributor Banks. Contributor Panels will broadly reflect the balance of activity in the inter-bank deposit market. Individual Contributor Banks are selected by the BBA s FX & Money Markets Advisory Panel after private nomination and discussions with the Steering Group, on the basis of reputation, scale of activity in the London market and perceived expertise in the currency concerned, and giving due consideration to credit standing. The BBA, in consultation with the BBA LIBOR Steering Group, will review the composition of the Contributor Panels at least annually.

Contributed rates will be ranked in order and only the middle two quartiles averaged arithmetically. Such average rate will be the BBA LIBOR Fixing for that particular currency, maturity and fixing date. Individual Contributor Panel Bank rates will be released shortly after publication of the average rate.

BBA LIBOR CALCULATION

BBA LIBOR is not a compounded rate but is calculated on the basis of actual days in funding period/360. Therefore the formula is as follows: interest due = principal x (libor rate/100) x (actual no of days in interest period/360). Please note that for GBP) the calculation basis is 365 days.It is also important to work out the exact/actual number of days in the funding period which is not always 90 days for a 3 month deposit but could e.g. be 89 or 91 days. If you have a funding period of, for example, 45 days you could extrapolate between the 1 and the 2 month rate to arrive at the correct BBA LIBOR rate.

MARKET CONVENTIONS      
Currency Number of Contributors Quotation basis Fixing basis  
AUD
CAD
CHF
DKK
EUR
GBP
JPY
NZD
SEK
USD
 8
12
12
8
16
16
16
8
8
16
a/360
a/360
a/360
a/360
a/360
a/365
a/360
a/360
a/360
a/360
spot
spot
spot
spot
spot
same day
spot
spot
spot
spot

All currencies are fixed on a spot basis on each London Business Day apart from Sterling, which is fixed for same day value. EUR rates are fixed on each Target Business Day regardless of whether it is a London Business Day. The spot value date for EURO is two TARGET business days after the Fixing Date. BBA Euro LIBOR follows the Target calendar - as set by the European Central Bank. So on days in which Target is open but London is closed, only the EUR BBA LIBOR rate will be fixed. If Target is closed but London is trading the BBA will fix EUR BBA LIBOR with the exception of the s/n maturity.

There are 15 different maturities for each currency and day of fixing. The shortest maturity is overnight (O/N) for Euro, US Dollar, Pound Sterling, and Canadian Dollar and spot/next (s/n) for all other currencies. 1 w stands for 1 week and 1m stands for 1 month. The longest maturity for which BBA LIBOR is fixed is 12 months. An "overnight" rate that you see quoted tomorrow will value today and mature tomorrow. A "spot / next" rate that you see quoted today will value in 2 days (i.e. the day after tomorrow) and mature the day after that.

RELATIONSHIP BETWEEN DIFFERENT CURRENCIES

BBA LIBOR is set entirely independently for each currency by a different panel of banks and the rates are not interrelated via a currency conversion or any other means. In fact BBA LIBOR gives an idea at which interest rates banks can borrow funds in the currency concerned in the London cash market. For instance, borrowings in USD are sometimes referred to as Eurodollar interestrates. The factor that has most impact on each of the rates is the domestic interest, which for USD rates will be the Fed fund rates.

EURIBOR vs EURO LIBOR

Unlike BBA Euro LIBOR, EURIBOR, the complementary fixing which has been established by the European Banking Federation and ACI to benchmark in-zone rates, applies a concept of country quota. Each in-country has at least one bank represented on the Panel and smaller countries will rotatemembership of the Panel amongst their leading commercial banks every 6 months. EURIBOR has a panel of 49 reference banks from in zone countries as well as international banks. Bank of Tokyo-Mitsubishi, Chase, Citibank, JP Morgan Bank of America and UBS have been selected to represent international banks. The averaging method of BBA LIBOR (wherein the top and bottom quartiles are discarded and the middle 50% averaged to produce the LIBOR fixing) is similar to EURIBOR's although only the top and bottom 15% are rejected in the FBE/ACI process. This differential topping and tailing will result in there being a greater ratio of smaller banks to larger banks in EURIBOR. The degree to which EURIBOR and BBA Euro LIBOR are used in the wholesale markets could be determined by differences in perception about the credit quality of the 16 large banks comprising the BBA Panel and the banks on the EURIBOR Panel, some of  which are comparatively small.

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SOURCE:

Technical Documentation (compiled and edited), British Bankers' Association BBA, WWW.BBA.ORG.UK