A detail presentation on Mumbai Inter-Bank Offer Rate

1. Mumbai Inter-Bank Offer Rate
(MIBOR)
Presented by
Irfan Khan C.N

2. The MIBID/MIBOR rate is used as a bench mark rate for majority of deals struck for
Interest Rate Swaps, Forward Rate Agreements, Floating Rate Debentures and
Term Deposits.
Fixed Income Money Market and Derivative Association of India (FIMMDA) has
been in the forefront for creation of benchmarks that can be used by the market
participants to bring uniformity in the market place. To take the process of
development further, FIMMDA and NSEIL have taken the initiative to co-brand the
dissemination of reference rates for the Overnight Call and Term Money Market
using the current methodology behind NSE – MIBID/MIBOR. The product was
rechristened as 'FIMMDA-NSE MIBID/MIBOR'. The 'FIMMDA-NSE MIBID/MIBOR'
is now jointly disseminated by FIMMDA as well as NSEIL through their websites and
other means and simultaneous dissemination of the information would be as per
international practice.

3. The interest rate at which banks can borrow funds, in marketable size, from
other banks in the Indian interbank market. The Mumbai Interbank Offered Rate
(MIBOR) is calculated everyday by the National Stock Exchange of India
(NSEIL) as a weighted average of lending rates of a group of banks, on funds
lent to first-class borrowers. A reference rate is an accurate measure of the
market price. In the fixed income market, it is an interest rate that the market
respects and closely watches. It plays a useful role in a variety of situations.

4. The Committee for the Development of the Debt Market had studied
and recommended the modalities for the development for a benchmark
rate for the call money market. Accordingly, NSE had developed and
launched the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE
Mumbai Inter-bank Offer Rate (MIBOR) for the overnight money market
on June 15, 1998. The success of the Overnight NSE MIBID MIBOR
encouraged the Exchange to develop a benchmark rate for the term
money market. NSE launched the 14-day NSE MIBID MIBOR on
November 10, 1998 and the longer term money market benchmark
rates for 1 month and 3 months on December 1, 1998. Further, the
exchange introduced a 3 Day FIMMDA-NSE MIBID-MIBOR on all
Fridays with effect from June 6, 2008 in addition to existing
overnight rate.

5. Unbiased
The National Stock Exchange of India (NSEIL) has been trusted by the securities markets for its unbiased independence and
professionalism. The function of forecasting has become more meaningful as the information comes from a source, which is not
only reliable but has no vested interest of its own in the market movements.
Market Representation
FIMMDA-NSE MIBID MIBOR is based on rates polled by NSE from a representative panel of 30 banks/ primary dealers.
Transparent
The reference rate is released to all the market participants simultaneously through various media, making it transparent with the
aspiration of the market. Ensuing transparency helps the market participants to judge the market mood and the probable rate one is
likely to encounter in the market. This information is useful not only to the banks but also to the issuers and investors.
Reliable
The high level of co-relation between actual deals and the reference rate gives an indication of its reliability. The bootstrapping
technique guards against the possibility of cartelisation and of extreme observations influencing the mean.
Scientifically Computed
The methodology of "Polling" with "Bootstrapping" is scientific and the values are generated through a system that has been
extensively tested. The technique involves generating multiple data sets based on the rates polled with a dynamically determined
number of iterations, identification of outliers, trimming the data set of its extreme values and computation of the mean and its
standard deviation.
Elimination of Noise
The trimming procedure is vulnerable to market manipulation of the rates due to the amount of sampling noise. Excessive
trimming may lead to loss of information whereas no trimming may lead to excessive influence of the extreme values. To derive a
true representative benchmark for the market NSE ensures that after trimming at least 14 data points should remain in observation
for the bid and for the ask rates.
Consistency
The Exchange ensures that everyday the FIMMDA-NSE MIBID MIBOR along with the respective standard deviations are
disseminated to the market at 0955 (IST) for overnight rate and at 1200 (IST) for 14 day, 1 month and 3 month rates..

6. Volume weighted average (VWA) is calculated by averaging the reported trades after weighting them with their
respective volume. The VWA needs price volume data of all executed deals and is a reliable measure of the market
sentiment. However the calculation of VWA has some constraints in the Indian context, as most participants prefer to
keep their transactions confidential.
Polling (Delphic oracle) is used for obtaining reference rates by polling a few market participants and summarizing the
prices they report. The highly liquid CME Eurodollar contract uses this method for its futures contract. The procedure
involves querying bid and offer prices from eight market participants.
Identifying and isolating noise in data: Having selected an appropriate technique for collecting data, one has to
devise methods to identify and isolate the noise in data so as to minimize the impact of the extreme values on the final
result, i.e. the reference rate.
Traded mean: Calculating fixed trimmed mean of the reported rates have been used by some organizations which
need to use a reference rate, e.g. the CME for its Eurodollars contract, the CBOT for its Municipal Bond Index, etc.
They collect rates from individual dealers and compute a reference rate as the trimmed mean is obtained after deleting
"n" highest and lowest observations.
Bootstrapping: The bootstrap technique is a non-parametric method for computing the test statistics, i.e.
• Computing the reference rate as an average of the polled rates after an appropriate amount of trimming to minimise
noise.
• Computing a measure of dispersion i.e. the confidence intervals for the trimmed means.
Thus, the methodology adopted by FIMMDA-NSE MIBID/MIBOR not only seeks to tackle the limitation of the polling
method but also uses adaptive trimming to identify and isolate the extreme value to derive a true representative
benchmark for the market. Moreover, the entire process of polling and processing of data is completed in a time-bound
schedule and the reference rates are released to the market every day.

7. Public Sector Banks Private Sector Banks Foreign Banks
 Bank of Baroda  Axis Bank Ltd.  CitiBank N.A.
 Bank of India  HDFC Bank Ltd.  Deutsche Bank AG
 Canara Bank  ICICI Bank Ltd.  Development Bank of Singapore
 Central Bank of India  IndusInd Bank Ltd.  HSBC
 Corporation Bank  IDBI Bank Ltd.  Standard Chartered Bank
 Indian Bank  Kotak Bank
 Indian Overseas Bank  Yes Bank Ltd.
 Punjab National Bank
 State Bank of India
Primary Dealers
 State Bank of Hyderabad
 SBI DFHI Ltd.
 State Bank of Patiala
 ICICI Securities Ltd. (I-Sec).
 Syndicate Bank
 PNB Gilts Ltd.
 Union Bank of India
 Securities Trading Corporation India Ltd. (STCI)
 UCO Bank

8. • FIMMDA-NSE MIBID MIBOR rates are broadcast through the NEAT-
WDM trading system immediately on release. The NSE website carries the
daily rates as well as the historical data on the FIMMDA-NSE MIBID
MIBOR. The FIMMDA also disseminates the FIMMDA-NSE MIBID
MIBOR rates through its website and other means.
• In addition leading information vendors carry these rates on a daily basis.
Reuters on its news information page, Bridge News Service (Knight Ridder)
on page no.2811, Bloomberg on its money market page as well as a news
story and PTI on its money market page.
• FIMMDA-NSE MIBID MIBOR rates are also carried by all leading
financial dailies including Economic Times, Financial Express, Business
Standard and Business Line.
• In addition to the above, FIMMDA-NSE MIBID MIBOR rates are released
to contributors and users through E-mail.

9. Floating Rate Notes Corporate Debentures Term Deposit
 GE Capital  L&T  ICICI bank
 GE Capital
Interest Rate Swaps
 Parties: Standard Chartered Bank & Multinational entity
 Parties: HSBC & Corporate entity
 Parties: HDFC Bank & KEC International
 Parties: ABN AMRO N. V. & Multinational entity
 Parties: ABN AMRO N. V. & Reliance Industries
 Parties: ABN AMRO N. V. & Multinational entity
 Parties: Deutsche Bank & ICICI Ltd.
 Parties: Deutsche Bank & Multinational entity
Forward Rate Agreements
 Bank : HSBC

10. • Traders can make many decisions as offsets compared with the
prevailing reference rate.
• Derivatives require a clearly defined reference rate as a
foundation, off which the pay-off from the derivative is
defined.
• A variety of contracts can be structured as offsets from the
future levels of a reference rate.

11. FIMMDA-NSE MIBID MIBOR for the Day
Last Updated on 28-March-2013
Category Time MIBID SD(MIBID) MIBOR SD(MIBOR)
OVERNIGH
9:40 a.m. 8.78 0.5001 8.98 0.5757
T
3 DAY 9:40 a.m. 13.49 0.4105 14.44 0.3866
14 DAY 11:30 a.m. 9.49 0.3419 9.9 0.2485
1 MONTH 11:30 a.m. 9.3 0.2517 9.63 0.2108
3 MONTH 11:30 a.m. 9.47 0.1907 9.78 0.1116
Time Series: Overnight 3-Day 14-Day 1-Month 3-Month

12. Offer
Offer _Min
Offer_ MIBOR Bid_ MIBID _Max _ Bid_Max Bid_Min
Date Fixing Time No MIBOR (σ) No MIBID (σ) _Rate Rate _Rate _Rate Deals WAONR* Dealt(σ) Value**
28/03/ 1st 10:00
2013 Fixing A.M. 25 13.9099 2.7488 73 12.4025 2.6503 17 8.9 16 7.75 36 13.6201 2.7787 3565
28/03/ 2nd 1:00
2013 Fixing P.M. 47 14.6068 2.3291 86 12.6496 2.6726 18 8.9 16 7.6 66 14.3024 2.1974 7875
26/03/ 1st 10:00
2013 Fixing A.M. 59 7.781 0.0314 109 7.7826 0.0327 7.9 7.75 7.9 7.7 134 7.7904 0.0502 18665
26/03/ 2nd 1:00
2013 Fixing P.M. 68 7.7943 0.0685 126 7.8064 0.0692 8 7.75 8.05 7.7 152 7.8144 0.1025 20672
* Weighted Average Overnight Rate
** Dealt Amount in Rs. Crore

13. THANK YOU FOR
YOUR KIND
ATTENDANCE