In his recent speech, RBI Governor D. Subbarao says this:

Can we have problem similar to LIBOR here in India? The counterpart of LIBOR in India is the less used MIBOR which is set by FIMMDA-NSE. The Reserve Bank, on its part, compiles and publishes every day the reference exchange rates for spot USD-INR and spot EUR-INR following a transparent statistical method. Earlier on, we used to set the rate by averaging the mean of the bid/offer rates polled from a few select banks as at 12 noon on every working day. A few months ago we changed the method. Now we poll a select list of contributing banks at a randomly chosen five minute window between 11.45 am and 12.15 pm and put out the reference rate at 12.30 pm. The contributing banks are selected on the basis of their market-share in the domestic foreign exchange market and representative character. The Reserve Bank periodically reviews the procedure for selecting the banks and the methodology of polling so as to ensure that the reference rate remains a true reflection of market activity.

(emphasis mine)

So can we really have a LIEBOR like situation in this scenario?

Full marks if you’re that old cat in the corner laughing so hard he can’t even pause to answer this question.

If we select banks based on their market share in the forex market, they have all the more reason to manipulate the price in the direction they want it to go. Second, if you’re going to call between 11:45 am and 12:15 pm and BigBanks want to collude to manipulate the price, they can simply decide to fudge bids when RBI calls.

The better approach – my suggestion: The RBI’s recent call has been to submit all actual FX trade details within 30 minutes. When that happens, they can get an idea of the REAL trades that happened between, say, 11 AM and 12 noon, which they can do a weighted time average and produce a statistical rate. This can still be gamed but if it means that ACTUAL money changed hands, it’s valid.

If banks are fudging the RBI reference rate (which is the basis for exchange traded futures on expiry for instance) they can’t be stopped by expanding a polling window by 15 minutes. Banks have ample incentive now, so the only "reference" rate can be actual trades..

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