WIBID AND WIBOR UNDER THE BENCHMARK REGULATION … · 2019-12-27 · Model Quotes determine the interest rate at which a Fixing Participant may accept (Model Quote bid Rate) or place

WIBID AND WIBOR UNDER THE

BENCHMARK REGULATION

Consultation paper summary

Warsaw, October 2019

GPW BENCHMARK S.A. CONSULTATION PAPER SUMMARY

1

We are hereby presenting the material being a summary of the consultation process conducted

by GPW Benchmark regarding the adjustment of the provision method of WIBID and WIBOR

reference rates to the requirements of Regulation (EU) 2016/1011 of the European Parliament and

of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial

contracts or to measure the performance of investment funds and amending Directives 2008/48/EC

and 2014/17/EU and Regulation (EU) No 596/2014. The subject of this document is GPW

Benchmark's feedback to stakeholders' comments on the assumptions concerning the adjustment of

WIBID and WIBOR reference rates presented in GPW Benchmark 2019 Consultation Paper – WIBID

and WIBOR under the Benchmark Regulation, including the proposed Waterfall Method.


2

Table of Contents 1. Summary of answers of the Fixing Participants and other entities participating in the

consultation process ............................................................................................................................... 3

2. Summary of responses of Fixing Participants from the Answer Template attached to the

Consultation Paper on the Adjustment of WIBID and WIBOR Reference Rates. .................................... 4

2.1. Overview of answers of the Fixing Participants .................................................................. 5

2.2. Review of results of the simulated parametrization proposed by the Fixing Participants 10

3. Summary of responses of banks not being Fixing Participants and other entities from the Answer

Template attached to the Consultation Paper on the Adjustment of WIBID and WIBOR Reference

Rates. ..................................................................................................................................................... 16

3.1. O/N and T/N publication ................................................................................................... 16

3.2. Subjective Criterion and the Reference Market ................................................................ 17

3.3. Data origin date and sequence of Analytical Procedures ................................................. 17

3.4. Heterogeneity of the money market curve ....................................................................... 18

4. Additional information .................................................................................................................. 18

4.1. Transactionality Level definition ....................................................................................... 18

4.2. Parametrization of the Extrapolation Procedure .............................................................. 19

5. Proposal for clarifying the Waterfall Method – strengthening Waterfall Method (MKD) resilience

in the segment of the Committed Quotes ............................................................................................ 19

6. Conclusions from answers to the questions included in the Consultation Paper ......................... 20

7. The stage of consultations with the Fixing Participants regarding detailed principles of input data

preparation ............................................................................................................................................ 20

8. Summary........................................................................................................................................ 21


3

1. Summary of answers of the Fixing Participants and other entities

participating in the consultation process

The table below summarizes the answers:

Banks - Fixing Participants and non-Fixing Participants YES NO No answer

1. Do you agree with the selection of the Financial Institutions

Segment and the Other Financial Institutions Segment as Related

Markets? 14 1 0

2. Do you agree with the hierarchy of the Waterfall Method? 14 1 0

3. Do you support the introduction of transaction eligibility

thresholds? 15 0 0

4. In view of the presented results, do you agree with the Baseline

Variant parameters as ensuring adequate transactionality at

acceptable volatility? 8 6 1

5. Do you agree with the characteristics in the definition of the

WIBID and WIBOR Reference Rates? 13 1 1

6. Do you agree with the classification of the key elements of the

WIBID/WIBOR Reference Rates calculation method? 12 2 1

7: Do you agree with the results of the classification of the

publication time of tenors ON and TN? 10 3 2

8. Do you agree with the results of the classification of the change to

the maturity structure due to discontinuation of the provision and

publication of tenor 9M? 14 0 1


the specific principles of preparing Input Data? 11 1 3

10. Do you agree that the results of the Adjustment of

WIBID/WIBOR suggest that the key elements of the WIBID/WIBOR

Reference Rates method have not changed? 7 2 6


4

2. Summary of responses of Fixing Participants from the Answer Template

attached to the Consultation Paper on the Adjustment of WIBID and

WIBOR Reference Rates.

The table below summarizes the answers:

Banks - Fixing Participants YES NO No answer



Markets? 9 1 0



thresholds? 10 0 0












publication of tenor 9M? 9 0 1





Reference Rates method have not changed? 5 2 3


5

2.1. Overview of answers of the Fixing Participants

1. Do you agree with the selection of the Financial Institutions Segment and the

Other Financial Institutions Segment as Related Markets?

The vast majority of the Fixing Participants agree on the proposed, on the basis of the completed studies, qualification of the Financial Institutions Segment and the Other Financial Institutions

Segment as Related Markets for the Waterfall Method. One of the Fixing Participants disagreed with the proposed selection and suggested not to include Other Financial Institutions in the method, due to the risk of increased rate volatility resulting from the inclusion of this segment. Along with the responses, some institutions indicated the need to specify the types of transactions included or excluded from the algorithm of preparing Model Quotes within the given Related Market.

GPWB: The qualification of Related Markets as well as the types of transactions within a given segment will be based on analyses and consultations. The qualification of a transaction is based on the implementation of a volume threshold. The further

development of the methodology, potentially taking account of the possible extension of related markets scope, will be based on the analysis of data. However, adjusting the method and implementing detailed solutions on the part of the banks - Fixing Participants,

in terms of preparing input data with direct consideration of the transactions made in the market, will obviously result in greater rate volatility. The unchanged calculation method on the Administrator's side in the form of a trimmed average for the submitted Quotes limits the effect of individual transactions of a particular entity on the calculation result, and the method is simultaneously stabilized through appropriately selected parameters of the analytical procedures. The implementation of the Waterfall Method assumes direct reference to transaction data without any impact of the

expert judgement that has stabilized the method so far. Materiality tests completed on the basis of simulations confirm that the scale of volatility of the proposed method does not generate the discontinuity risk of the WIBID and WIBOR Reference Rates.

2. Do you agree with the hierarchy of the Waterfall Method?

The Fixing Participants mostly agree to the principles of hierarchy assumed in the Waterfall Method,

presented in the Consultation Paper. The Fixing Participant who disagreed pointed to the need to

strengthen the hierarchy by differentiating volume thresholds and raising the Incremental Parameter. GPWB: GPWB has analyzed a number of assumptions concerning volume thresholds. The implementation of progressive volume thresholds has been analyzed by GPWB, but the negative impact of higher or progressive volume thresholds on the transactionality level

is greater than the positive impact of higher or progressive volume thresholds on the rate volatility in relation to the Baseline Variant. With the possible extension of related markets, transaction threshold recommendations will be analyzed and taken into account. The Waterfall Method implemented on the Fixing Participants' side is operationally ready for such changes.

3. Do you support the introduction of transaction eligibility thresholds?

All banks pointed to the need to introduce transaction eligibility thresholds so as to minimize the

volatility of rates and limit the risk of manipulation. One of the Fixing Participants proposed the

transaction eligibility thresholds to be differentiated for the Reference Market and Related Markets.

Another pointed out the need for clarification of the Procedure of Fixing Tenor Assignment to Non-

Fixing Tenor Transactions in order to take into account as large dataset as possible.

GPWB: Remark referring to verification of the scale of using Non-Fixing Tenor Transactions

will be included in the scope of elucidating the description of the Procedure of Fixing Tenor

Assignment to Non-Fixing Tenor Transactions applied under the Waterfall Method. The

description of this procedure will specify that only transactions with Non-Fixing Tenors

must meet the volume eligibility criterion and transactions resulting from the assignment

of Fixing Tenors to Non-Fixing Tenor transactions no longer have to meet this criterion,

in order to take account the transactional aspect as broadly as possible.


6

4. In view of the presented results, do you agree with the Baseline Variant

parameters as ensuring adequate transactionality at acceptable volatility?

The Fixing Participants proposed other parametrization variants, in which, in principle, the

parameters used in the Waterfall Method (MKD) would be of the higher values, mainly with regard

to eligibility thresholds and the Incremental parameter. The aggregation of the proposed approaches

and their verification in relation to the Baseline Variant are included in subchapter 2.2.

5. Do you agree with the characteristics in the definition of the WIBID and WIBOR

Reference Rates?

All the Fixing Participants, apart from one bank that did not take a stance, agreed with the definition

of WIBID/WIBOR Reference Rates. However, some entities paid attention to the need to verify

cohesion and explain the relation of the Subjective Criterion to the Reference Market definition.

GPWB: For the purpose of preserving WIBID and WIBOR continuity, the scope of the

Reference Market the benchmark intends to measure was maintained. For WIBID and

WIBOR reference rates, the Reference Market is the market which includes unsecured

deposits transactions in zloty (PLN) concluded between the Fixing Participants and

unsecured deposit transactions in zloty (PLN) concluded by the Fixing Participants with

credit institutions not being the Fixing Participants, but capable of fulfilling the Fixing

Participants criteria, namely credit institutions that can potentially become the Fixing

Participants. In such profile of the Reference Market it is significant that its subjective

scope includes financial instruments similar to each other from the point of view of the

market position. Therefore, at this stage of WIBID and WIBOR reference rates adjustment,

other financial institutions have been excluded from this scope.

The so defined Reference Market is measured on the basis of Quotes provided by the Fixing

Participants, namely these credit institutions participating in the Reference Market that

have obtained the status of entities providing the Input Data. Quotes are transferred in

the form of Model Quotes and Committed Quotes. Model Quotes are based on Transaction

Data and, consequently, have priority over Committed Quotes.

Model Quotes determine the interest rate at which a Fixing Participant may accept (Model

Quote bid Rate) or place a Reference Market Deposit (Model Quote offer Rate) on each of

the Fixing Tenors and are determined by the Fixing Participant on the basis of the

Transaction Data according to the Waterfall Method. According to Waterfall Method (MKD),

the usage of the Transaction Data from Related Markets when determining the Model

Quote does not change its nature or scope of the Reference Market which the Model Quote

refers to. The usage of the Transaction Data from the Related Market happens when the

Model Quote cannot be determined directly on the Transaction Data from the Reference

Market. Such approach is not only consistent with Annex I item 1 BMR, but even required.

The BMR Regulation requires benchmark values to be established based on transaction

data from the Reference Market, and in case of insufficient data from the Reference

Market, to use transaction data from the Related Markets. The usage of the Transaction

Data when determining the Model Quote is done by launching the Extrapolation Procedure

which allows transposition of results obtained from the Related Market Transaction Data

into the Reference Market Transaction Factor.

Committed Quotes are the quotes (committed quotes) as defined by item 1 letter c) of

Annex I to BMR and determine the interest rate at which a Fixing Participant, according to

the terms specified in Code of Conduct, is ready to make a binding offer to (Offer Rate

Committed Quote) or accept a Deposit (Bid Rate Committed Quote) from another Fixing

Participant on each of the Fixing Tenors.

The so defined Committed Quote is a different Input Data than the Model Quote. The

Committed Quote is the binding price made by the Fixing Participant to the other Fixing

Participants. This Input Data is used when the Fixing Participant cannot determine the


7

Model Quote from the Transaction Data. Its value may vary from the value specified in the

Model Quote in the same way as prices from a particular time on the given market may

differ from the actual transaction prices recorded in a different time window. Both types

of Quotes are significant from the point of view of both the Reference Market analysis

performed by the Administrator and the Fixing Participant's application of analytical

procedures to determine credible Model Quotes. Therefore, the Administrator introduced

the requirement to transfer the Committed Quotes to the Administrator regardless of

providing Model Quotes. A proposed definitions are included below, in connection with

comments from one of the Fixing Participants reported in the section regarding general

comments to the Consultation Paper:

(1) The Reference Rates are interest rates benchmarks as defined by Art. 3 section 1

item 22 of the BMR Regulation by GPW Benchmark S.A. for particular Fixing Tenors.

(2) The Reference Rates are: WIBID and WIBOR.

(3) WIBID Index is an interest rate benchmark as defined by Art. 3 section 1 item 22

of the BMR Regulation at which credit institutions fulfilling the criteria for a Fixing

Participant may accept a Deposit on specific Fixing Tenors for other credit

institutions, fulfilling the criteria for a Fixing Participant

(4) WIBOR Index is an interest rate benchmark as defined by Art. 3 section 1 item 22

of the BMR Regulation at which credit institutions fulfilling the criteria for a Fixing

Participant may place a Deposit on specific Fixing Tenors for other credit

institutions fulfilling the criteria for a Fixing Participant.

6. Do you agree with the classification of the key elements of the WIBID/WIBOR

Reference Rates calculation method?

The Fixing Participants mostly agreed with the proposed classification of Key Elements in the

Reference Rates Calculation Method. One of the Fixing Participants who presented a negative

response believes that the fixing time should not be a Key Element of the Method. Another Participant

proposed literal reference in this regard to the Delegated Regulation 2018/1641.

One of the consultation process participants being a Non-Fixing Participant pointed to that the

material change is a change of the publication time for ON and TN tenors.

GPWB: In the Consultation Paper in the part devoted to materiality tests of the proposed

changes, it was pointed that, despite change of the publication time being acknowledged

as a key element of the method, potentially resulting in a material change (first of all, due

to recognizing previous definitions of WIBID and WIBOR reference rates, used in financial

agreements and financial instruments), the conducted tests allow for a conclusion that the

change does not impede the statistical continuity of the WIBID and WIBOR Reference

Rates.

7. Do you agree with the results of the classification of the publication time of tenors

ON and TN?

The majority of the Fixing Participants agree as to the change of the publication time for ON and TN tenors. The bank that marked a negative answer indicated that the change of the publication time for one-day rates requires adoption of the assumptions concerning transaction characteristics (without automatic transactions) and transaction conclusion time as the moment of transaction

registration in the systems. A similar comment was presented by the entity which supported the postponement of the ON and TN rates publication time to 17:00. Additionally, a bank not being a Fixing Participant also paid attention to the risk of the incapability of using the rates published at

17:00 on a given business day. GPWB: The issue of transaction types considered in the Waterfall Method will be regulated in the Code of Conduct. The moment of concluding the transaction is key from the point of view of the stipulated cutoff times (3:30 pm for Related Markets and 4:30 pm for the Reference Market). Reliability in reflecting the market reality requires as large set of transactions as possible to determine the rates, and this does not allow earlier publication.


8

In international markets, transaction-based one-day rates are made available even later

on the same day or in the morning the next business day.

8. Do you agree with the results of the classification of the change to the maturity

structure due to discontinuation of the provision and publication of tenor 9M?

All the Fixing Participants, except for the bank that did not mark any answer on this matter, did

accept the proposed discontinuation of the provision and publication of 9M tenor. Two Fixing Participants jointly proposed the discontinuation of 1Y, TN, 2W tenors. GPWB: Note accepted. Discontinuation of the proposed tenors will be implemented during reviews of the reference rate calculation method.

9. Do you agree with the results of the classification of the change to the specific

principles of preparing Input Data?

The Fixing Participants mostly agreed with the results of classification of the change in the structure

of the specific principles of preparing input data. The institution which marked a negative answer

emphasized that the classification of the change in the detailed rules of preparing input data is a

material change of a non-key element of the method.

GPWB: In the opinion of GPWB, clarification and standarization of the input data

preparation process is not a material change due to maintaining the nature of the

Reference Market and adjustment to the provisions of the BMR Regulation.

Implementation of the detailed principles of preparing input data was classified by GPW

Benchmark as one that can potentially create a material change. In connection with the

above, analyses were conducted, consistent with the materiality criterion. The conducted

Waterfall Method (MKD) tests in the Baseline Variant version did not result in any premises

for considering the change as material.

10. Do you agree that the results of the Adjustment of WIBID/WIBOR suggest that

the key elements of the WIBID/WIBOR Reference Rates method have not

changed?

The majority of the Fixing Participants that have taken a stance in this case (three banks did not give an answer) believe that, as a result of the WIBID/WIBOR adjustment process, Key Elements of the WIBID/WIBOR Reference Rate Method have not changed.

One of the Fixing Participants expressed an opinion that Key Elements of the Method have materially changed and pointed to the need for more accurate analysis of the O/N rate volatility. Another Bank that gave a negative answer believes that the change of O/N and T/N publication time from 11:00 to 17:00 is a change of a key element of the method, in spite of the need to perform modifications in order to reflect the market reality in the best possible way. GPWB: GPWB's position is that the postponed ON and TN rates’ publication time was

necessary due to the need to recognize the transactional aspect in a manner that would reflect market realities specific to a given day. The provisions in the Consultation Paper were the result of the discussion with the Fixing Participants in course of a number of

meetings, which took place during the consultation process.

11. Review of answers under the additional sectoral consultation process

A part of GPW Benchmark's works schedule is presentation of the results of previous works and

verification of possible ambiguities concerning the Consultation Paper within meetings with the Fixing

Participants and representatives of the primary stakeholders. During these meetings, ambiguities

were reported regarding Waterfall Method (MKD) sensitivity to transactions performed within the

Transaction Window, due to the transactional obligation and the Baseline Variant structure presented

in Waterfall Method (MKD). GPW Benchmark conducted an additional sectoral consultation process


9

in order to mitigate the possible likelihood of manipulation or effect of possible errors among Fixing

Participants on the WIBID and WIBOR reference rate calculation result.

Alternative solutions were proposed, consisting in:

(1) Implementation of the Local Incremental Parameter – functioning in a manner consistent

with the description in the Consultation Paper and used solely for transactions taking place

in the Fixing Participants' Transaction Window.

(2) Exclusion of transactions concluded based on Extreme Quotes, having its substantiation in

the final trimmed average method on the Administrator's side, removing extreme input data

provided by the Fixing Participants in the form of Quotes.

As part of the consultations with the Fixing Participants, the above issues were addressed, which

helped to obtain the following answers:

(1) 4 banks see no need to adopt special solutions either to mitigate the manipulation risk or to

limit rate volatility under market activity within the transaction window mechanism. The

justification for such position is presence of binding procedures and sanctions, effectively

counteracting manipulation. (2) 6 banks support introduction of one of the aforementioned solutions (4 Banks that have taken

a stance in this case indicate support for one of the aforementioned solutions, at the same

time, two banks are in favor of introducing both solutions. (3) When the Local Incremental Parameter would be applied, most of the banks support the

Local Incremental parameter value at 2 (one of the banks supporting the solution proposed

the parameter equal to 3), and another one, not supporting its implementation, pointed to

the level of 2 in response to the question about the Local Incremental Parameter value.

12. Other remarks of the Fixing Participants

Other remarks reported by the Fixing Participants do not concern the reservations related to the

method's assumptions, but, among others:

(1) verification of the definitions contained in the paper, related to the calculation and publication

of the Reference Rates using the Waterfall Method,

(2) verification of symbols applied in mathematical notation,

(3) confirmation of using the Waterfall Method sequence,

(4) changes in the rule for the assignment of transactions to the Fixing Tenors,

(5) determination of the data types considered in preparing the Input Data,

(6) clarification of some records arising interpretation doubts and language errors.

It was also signaled that the optimal solution would be for GPW Benchmark to make the tools for the

Model Quotes available to all the Fixing Participants in order to minimize discrepancies.

GPWB: The actions to unify the Input Data preparation standard in the form of Quotes

(both Model and Committed Quotes) are GPWB's objective. Detailed guidelines are in the

expanded Code of Conduct. Unification and relative automation of solutions will be aimed

at strengthening the security of the input data preparation and transfer process. GPWB

has started the consultation process on this matter with the Fixing Participants.

Due to the diversity of features of the Input Data in the form of Model Quotes and

Committed Quotes the Administrator will stop publishing them , except for the publication

of the Committed Quotes to the Fixing Participants through the WIBIX Fixing System to

fulfill the obligation of concluding transactions according to the principles described in the

Code of Conduct.


10

2.2. Review of results of the simulated parametrization proposed by

the Fixing Participants

Summary of proposals

Most comments and notes were related to Question no. 4. concerning Parametrization of the

Baseline Variant as ensuring the adequate transactionality at acceptable volatility level. The majority

of the Fixing Participants do not agree with the proposed parametrization and suggested other

combinations of the parameter values to be verified. Based on the presented opinions, the following

variants were analyzed, being modifications of the Baseline Variant from the Consultation Paper:

Variant 1 - Eligibility thresholds RM = 1 million, FI = OFI = 5 million

Variant 2 - Eligibility thresholds according to transaction limits, namely 30 million ON and TN, 20 M SW–3M, 10 M - 6M, 5 M – 12M. Variant 3 - Eligibility thresholds RM = FI = OFI = 2 million Variant 4 - Incremental Parameter = 2 Variant 5 - Incremental Parameter = 3

Variant 6 - Progressive Incremental Parameter, namely RM = 1, FI = 2, OFI = 3 Variant 7 - Minimum number of transactions to conduct the extrapolation = 10

Variant 8 - Local Incremental Parameter = 2

Simulation results of the proposed variants

The results obtained, based on the completed simulation, indicate that each of the proposed

variants does not increase the transactionality level for any of the Tenors, moreover , in 95% of the cases, the proposed variants reduced the transactionality level of the Tenors.

The smallest differences in the transactionality level were recorded for Variant no. 8 with the

Local Incremental Parameter at the level of 2. These differences are ranging from 1.28 percentage

point for Tenor TN to 0.00 (2W, 6M) and 0.01 (3M) percentage point.

Below is a comparison of PT transactionality levels for particular variants and changes in their transaction levels relative to the Base Variant. The details concerning the transactionality level for particular Variants are presented in the further part of the paper, with breakdown into Tenors and

Waterfall levels.

TENOR/VARIANT

Baseline

Variant

Variant

no. 1

Variant

no. 2

Variant

no. 3

Variant

no. 4

Variant

no. 5

Variant

no. 6

Variant

no. 7

Variant

no. 8

ON 96,73% 96,42% 92,76% 96,51% 90,61% 83,31% 96,19% 96,66% 95,78%

TN 21,16% 21,12% 17,02% 20,90% 3,39% 0,72% 13,79% 20,20% 19,84%

SW 11,76% 5,70% 2,55% 9,05% 4,50% 1,90% 5,89% 8,59% 11,62%

2W 24,90% 16,02% 4,46% 22,62% 13,91% 8,57% 14,17% 22,55% 26,71%

1M 33,25% 17,84% 5,02% 27,04% 19,20% 10,86% 15,00% 28,87% 36,31%

3M 18,21% 7,13% 1,13% 13,54% 8,23% 3,43% 5,03% 14,62% 20,87%

6M 1,73% 0,88% 0,15% 1,72% 0,76% 0,29% 0,41% 0,55% 2,66%

1Y 0,77% 0,57% 0,00% 0,68% 0,36% 0,16% 0,44% 0,44% 0,73%

Table 1 – Statement of PT transactionality levels for particular Variants proposed by the Fixing Participants.


11

TENOR/VARIANT

Baseline

Variant

Variant

no. 1

Variant

no. 2

Variant

no. 3

Variant

no. 4

Variant

no. 5

Variant

no. 6

Variant

no. 7

Variant

no. 8

ON 96,73% -0,31 -3,97 -0,22 -6,12 -13,42 -0,54 -0,07 -0,95

TN 21,16% -0,04 -4,14 -0,26 -17,77 -20,44 -7,37 -0,96 -1,32

SW 11,76% -6,06 -9,21 -2,71 -7,26 -9,86 -5,87 -3,17 -0,14

2W 24,90% -8,88 -20,44 -2,28 -10,99 -16,33 -10,73 -2,35 1,81

1M 33,25% -15,41 -28,23 -6,21 -14,05 -22,39 -18,25 -4,38 3,06

3M 18,21% -11,08 -17,08 -4,67 -9,98 -14,78 -13,18 -3,59 2,66

6M 1,73% -0,85 -1,58 -0,01 -0,97 -1,44 -1,32 -1,18 0,93

1Y 0,77% -0,20 -0,77 -0,09 -0,41 -0,61 -0,33 -0,33 -0,04

Table 2 – Statement of PT transactionality level change for particular Variants proposed by the Fixing Participants relative to the Base Variant in percentage points.

Baseline Variant

TENOR/LEVEL P-1 P-2.1 P-2.2 P-3.1 P-3.2 P-3.3 P-3.4 P-4

PT

ON 90.11% 0.00% 0.00% 6.33% 0.00% 0.29% 0.00% 3.27% 96.73%

TN 13.55% 0.00% 0.00% 7.61% 0.00% 0.00% 0.00% 78.84% 21.16%

SW 2.33% 0.00% 0.85% 0.00% 5.75% 0.00% 2.83% 88.24% 11.76%

2W 1.37% 0.03% 1.40% 7.37% 8.91% 1.01% 4.81% 75.10% 24.90%

1M 1.17% 0.01% 0.61% 10.45% 7.78% 6.96% 6.26% 66.75% 33.25%

3M 0.77% 0.00% 0.13% 2.30% 3.52% 2.57% 8.91% 81.79% 18.21%

6M 0.00% 0.00% 0.00% 0.29% 0.11% 0.76% 0.57% 98.27% 1.73%

1Y 0.31% 0.00% 0.00% 0.19% 0.00% 0.27% 0.01% 99.23% 0.77%

Table 3 – Variant A. Frequency of using particular Waterfall Levels for particular Transaction Tenors. The symbols

from P-1 to P-4 refer to Waterfall Levels. The symbol PT means the Waterfall Method transactionality level, i.e.

frequency of using Transaction Data subject to Analytical Procedures.


12

Variant no. 1: Eligibility thresholds RM = 1 million, FI = OFI = 5 million


PT

ON 90,12% 0,00% 0,00% 5,96% 0,00% 0,35% 0,00% 3,58% 96,42%

TN 13,57% 0,00% 0,00% 7,56% 0,00% 0,00% 0,00% 78,88% 21,12%

SW 2,34% 0,00% 0,85% 0,00% 1,58% 0,00% 0,93% 94,30% 5,70%

2W 1,36% 0,03% 1,40% 3,74% 7,05% 0,01% 2,43% 83,98% 16,02%

1M 1,18% 0,01% 0,61% 5,03% 7,49% 0,80% 2,71% 82,16% 17,84%

3M 0,76% 0,00% 0,13% 1,22% 1,90% 0,53% 2,59% 92,87% 7,13%

6M 0,00% 0,00% 0,00% 0,21% 0,17% 0,12% 0,37% 99,12% 0,88%

1Y 0,31% 0,00% 0,00% 0,17% 0,07% 0,01% 0,01% 99,43% 0,57%

Table 4 – Variant 1. Frequency of using particular Waterfall Levels for particular Transaction Tenors. The symbols



Variant no. 2: Eligibility thresholds according to transaction limits from the Code of Conduct namely 30 M ON and TN, 20 million SW–3M, 10 million 6M, 5 million - 9M i 12M.


PT

ON 86,10% 0,00% 0,00% 6,37% 0,00% 0,29% 0,00% 7,24% 92,76%

TN 9,53% 0,00% 0,00% 7,49% 0,00% 0,00% 0,00% 82,98% 17,02%

SW 1,90% 0,00% 0,56% 0,00% 0,09% 0,00% 0,00% 97,45% 2,55%

2W 0,28% 0,01% 0,80% 0,55% 2,80% 0,00% 0,01% 95,54% 4,46%

1M 0,41% 0,01% 0,27% 1,20% 3,12% 0,00% 0,00% 94,98% 5,02%

3M 0,44% 0,00% 0,09% 0,21% 0,39% 0,00% 0,00% 98,87% 1,13%

6M 0,00% 0,00% 0,00% 0,11% 0,04% 0,00% 0,00% 99,85% 0,15%

1Y 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 100,00% 0,00%





13

Variant no.3: Eligibility thresholds RM = FI = OFI = 2 million


PT

ON 90,00% 0,00% 0,00% 6,24% 0,00% 0,28% 0,00% 3,49% 96,51%

TN 13,34% 0,00% 0,00% 7,56% 0,00% 0,00% 0,00% 79,10% 20,90%

SW 2,34% 0,00% 0,83% 0,00% 4,06% 0,00% 1,83% 90,95% 9,05%

2W 1,36% 0,03% 1,32% 6,38% 8,96% 0,28% 4,29% 77,38% 22,62%

1M 1,15% 0,01% 0,55% 7,65% 9,36% 3,67% 4,65% 72,96% 27,04%

3M 0,76% 0,00% 0,13% 1,95% 4,49% 1,74% 4,47% 86,46% 13,54%

6M 0,00% 0,00% 0,00% 0,25% 0,21% 0,39% 0,87% 98,28% 1,72%

1Y 0,29% 0,00% 0,00% 0,17% 0,07% 0,07% 0,08% 99,32% 0,68%




Variant no.4: Incremental parameter = 2


PT

ON 76,31% 0,00% 0,00% 13,09% 0,00% 1,22% 0,00% 9,39% 90,61%

TN 2,80% 0,00% 0,00% 0,59% 0,00% 0,00% 0,00% 96,61% 3,39%

SW 0,61% 0,00% 0,17% 0,00% 2,51% 0,00% 1,20% 95,50% 4,50%

2W 0,00% 0,00% 0,11% 3,53% 6,66% 0,47% 3,15% 86,09% 13,91%

1M 0,04% 0,00% 0,01% 3,67% 5,74% 3,65% 6,09% 80,80% 19,20%

3M 0,03% 0,00% 0,05% 0,63% 1,75% 0,96% 4,81% 91,77% 8,23%

6M 0,00% 0,00% 0,00% 0,07% 0,13% 0,12% 0,44% 99,24% 0,76%

1Y 0,07% 0,00% 0,00% 0,05% 0,03% 0,15% 0,07% 99,64% 0,36%





14

Variant no. 5: Incremental parameter = 3


PT

ON 60,42% 0,00% 0,00% 20,59% 0,00% 2,30% 0,00% 16,69% 83,31%

TN 0,67% 0,00% 0,00% 0,05% 0,00% 0,00% 0,00% 99,28% 0,72%

SW 0,12% 0,00% 0,04% 0,00% 1,19% 0,00% 0,55% 98,10% 1,90%

2W 0,00% 0,00% 0,00% 1,88% 4,49% 0,24% 1,96% 91,43% 8,57%

1M 0,03% 0,00% 0,00% 1,63% 3,61% 1,76% 3,83% 89,14% 10,86%

3M 0,00% 0,00% 0,00% 0,33% 0,60% 0,39% 2,11% 96,57% 3,43%

6M 0,00% 0,00% 0,00% 0,03% 0,05% 0,04% 0,17% 99,71% 0,29%

1Y 0,04% 0,00% 0,00% 0,03% 0,03% 0,03% 0,04% 99,84% 0,16%




Variant no.6: Progressive incremental parameter, namely RB = 1, FI = 2, OFI = 3


PT

ON 90,12% 0,00% 0,00% 5,82% 0,00% 0,25% 0,00% 3,81% 96,19%

TN 13,57% 0,00% 0,00% 0,23% 0,00% 0,00% 0,00% 86,21% 13,79%

SW 2,34% 0,00% 0,85% 0,00% 2,24% 0,00% 0,45% 94,11% 5,89%

2W 1,36% 0,03% 1,40% 3,38% 6,36% 0,17% 1,47% 85,83% 14,17%

1M 1,18% 0,01% 0,61% 3,58% 5,59% 1,27% 2,75% 85,00% 15,00%

3M 0,76% 0,00% 0,13% 0,63% 1,68% 0,29% 1,54% 94,97% 5,03%

6M 0,00% 0,00% 0,00% 0,07% 0,13% 0,04% 0,17% 99,59% 0,41%

1Y 0,31% 0,00% 0,00% 0,05% 0,03% 0,03% 0,03% 99,56% 0,44%





15

Variant no.7: Minimum number of transactions to conduct the extrapolation = 10


PT

ON 90,12% 0,00% 0,00% 6,30% 0,00% 0,24% 0,00% 3,34% 96,66%

TN 13,57% 0,00% 0,00% 6,64% 0,00% 0,00% 0,00% 79,80% 20,20%

SW 2,34% 0,00% 0,85% 0,00% 3,73% 0,00% 1,67% 91,41% 8,59%

2W 1,36% 0,03% 1,40% 5,62% 9,11% 0,17% 4,86% 77,45% 22,55%

1M 1,18% 0,01% 0,61% 5,86% 9,79% 4,59% 6,82% 71,13% 28,87%

3M 0,76% 0,00% 0,13% 0,59% 2,88% 0,61% 9,64% 85,38% 14,62%

6M 0,00% 0,00% 0,00% 0,03% 0,03% 0,11% 0,39% 99,45% 0,55%

1Y 0,31% 0,00% 0,00% 0,05% 0,01% 0,05% 0,01% 99,56% 0,44%




Variant no. 8: Local incremental parameter = 2


PT

ON 87,76% 0,00% 0,00% 7,58% 0,00% 0,44% 0,00% 4,22% 95,78%

TN 12,19% 0,00% 0,00% 7,65% 0,00% 0,00% 0,00% 80,16% 19,84%

SW 2,08% 0,00% 0,85% 0,00% 5,82% 0,00% 2,86% 88,38% 11,62%

2W 1,36% 0,03% 1,40% 7,34% 10,31% 1,00% 5,26% 73,29% 26,71%

1M 1,07% 0,01% 0,61% 10,48% 9,97% 6,86% 7,29% 63,69% 36,31%

3M 0,73% 0,00% 0,13% 2,31% 5,58% 2,50% 9,61% 79,13% 20,87%

6M 0,00% 0,00% 0,00% 0,28% 0,33% 0,76% 1,28% 97,34% 2,66%

1Y 0,07% 0,00% 0,00% 0,19% 0,08% 0,27% 0,13% 99,27% 0,73%





16

3. Summary of responses of banks not being Fixing Participants and other

entities from the Answer Template attached to the Consultation Paper

on the Adjustment of WIBID and WIBOR Reference Rates.

Four banks, which are Non-Fixing Participants and one entity related to the co-operative banking

sector sent answers to the Consultation Paper. In most cases, these entities agreed with the

Administrator's proposals.

A statement of their answers is presented in the following table:

3.1. O/N and T/N publication

Two banks approved ON and TN rate publication time to be postponed to 17:00, in turn the comments

of the third of them concentrated on issues related to determination of data origin date which are

used for the Input Data generation by the Fixing Participants.

GPWB: Issues concerning postponement of publication time until 17:00 were discussed in

item 7 in subchapter 2.1.

Regarding the transaction origin date, GPWB would like to draw attention to the obligation

to recognize credible, high quality transaction data at every stage of WIBID and WIBOR

reference rate calculation. Acquisition of a full package of information about the market

Banks not being the Fixing Participants and other entities YES NO

No

response



Markets?

5 0 0



thresholds? 5 0 0












publication of tenor 9M?

5 0 0





Reference Rates method have not changed?

2 0 3


17

realities on a given day is possible only after the motivation of market participants to

conclude transactions has been exhausted, after preparing transaction data and

transferring the Input Data in the form of Model Quotes based on these transactions to

the Administrator.

Regarding the use of the market data to prepare the Input Data in the form of Model

Quotes, it should thus be emphasized that assuming the market standard of benchmark

publication during morning hours, it is not possible to use the transactions from the same

day when calculating WIBID and WIBOR reference rates. Due to the attachment to the

publication time in the market and maintenance of an elevated Committed Quotes

standard in connection with the transaction obligation towards other regimes, after

consultations, GPWB recognized that it is adequate to leave the publication time

unchanged for longer terms. In addition, this is caused by the technological possibilities

of the Fixing Participants and the intention to ensure proper procedures when preparing

the transaction data used in the calculation of WIBID and WIBOR Reference Rates.

3.2. Subjective Criterion and the Reference Market

An entity related to the co-operative banking sector marked one negative answer which was related

to the definition of the Subjective Criterion and description of the Reference Market. In addition, this

institution paid attention to the absence of co-operative banks and cooperative savings and credit

associations in the definition of a credit institution adopted for the needs of works on the adjusted

method of provision of WIBID and WIBOR Reference Rates.

GPWB: Explanation concerning the Subjective Criterion was presented in the item related

to the Fixing Participants' answers regarding the definition of the Reference Rates.

The data and information concerning co-operative banks, except for associating banks,

constituted the basis for the assumption that this segment will not be a part of broader

Reference Market at this stage. This is justified by the fact that co-operative banks do not

conduct broad operations in the financial marked typical of universal banks, consisting in

e.g. significant direct participation in other money market segments other than the deposit

market and the interest rate derivatives market. This was consistent with answers to the

surveys and the recommendations provided by the Fixing Participants during verification

of the assumptions concerning definition of the market the benchmark intends to measure.

The purpose of adjustment was introduction of necessary BMR Regulation requirements

and making the calculation method more flexible so as to adjust it to possible development

in connection with verification of the method at the time of mandatory review.

In such profile of the Reference Market it is crucial that its subjective scope includes

similar financial institutions from the viewpoint of the market position. Therefore, at this

stage of WIBID and WIBOR Reference Rates adjustment, other financial institutions,

including co-operative banks were excluded from this subjective scope. More precise

Reference Market definition will be made within the Reference Rates Documentation being

adjusted, to avoid doubt in which market segment the co-operative banks will be included.

3.3. Data origin date and sequence of Analytical Procedures

One of the banks raised doubt whether on day T, within the Waterfall Method, in the event that a

result are Committed Quotes, these Quotes come from day T or from day T-1, as in the case of

transaction data used to set Model Quote values. In addition, a suggestion emerged to consider a

change in the order of Levels 2.1 (interpolation of the Model Quotes from Level 1) and 2.2

(assignment of Fixing Tenors to transactions with Non-Fixing Tenors), within the Waterfall Method.

GPWB: Within the Waterfall Method, when a result are Committed Quotes, these Quotes

come from day T and, not from day T-1. In order to avoid any doubt this will be additionally


18

clarified in the method description. Order of Levels 2.1 and 2.2 in the Waterfall Method

results from the fact that the interpolation applies to the Quotes which have been

determined directly based on the Transaction Data. In the case of switching the order of

Levels 2.1 and 2.2 in the Waterfall Method, the interpolation could also apply to the Quotes

which are created based on the application of the Procedure of Assignment of Fixing

Tenors to Transactions with Non-Fixing Tenors, that would introduce a double

approximation when calculating the Quotes. It was therefore decided to keep the current

order of the Levels within the Waterfall Method.

Utilization of reference rate values, according to the market convention, proceeds on day

T+2 starting from their publication and, not from the day of origin of the transactions

constituting the basis for determining the Input Data. It is worth recalling that the Model

Quotes, being the basis for calculating the WIBID and WIBOR reference rates, are not

subject to transactional obligation. However, this obligation still applies to the Committed

Quotes.

3.4. Heterogeneity of the money market curve

One of the banks not being a Fixing Participant has reserved that the inclusion of Transaction Data

from the Related Markets and their different transactionality level depending on the tenor make the

rates along the money market curve no longer comparable.

GPWB: Adjustment of the methodology of providing the WIBID and WIBOR Reference

Rates to the requirements of the BMR Regulation forces transactions performed by the

Fixing Participants including transactions on the Related Markets to be included at low

activity on the Reference Market. The proposed Waterfall Method allows for meeting the

conditions concerning the Input Data hierarchy included in the regulation. In such

circumstances heterogeneity of points on the money market curve becomes an inevitable

effect of the necessary actions. The applied Analytical Procedures limit the effect of

diversification of transaction data features adopted when preparing the Input Data in the

form of Model Quotes. Introducing transactions from the Related Markets without the

application of the respective Analytical Procedures, would result in an increased

diversification of points on the curve and this would be, in the opinion of GPWB, a material

change or provide reasons for setting a different index. GPWB will provide this type of

indices, which may become alternative ones.

4. Additional information

Apart from the matters indicated by the survey participants in comments to the answers to the

questions presented in the Answers Template and in the section concerning general comments to

the Consultation Paper, we would like to present the following supplementary information. At the

same time these are GPWB's answers to the entities' comments and queries expressed to the

Consultation Paper.

4.1. Transactionality Level definition

Regarding transparency of the definitions used in the Consultation Paper, GPW Benchmark wishes to

refer to doubts to the interpretation of the Transactionality Level.

On each Fixing Day, each Fixing Participant reports, for each Fixing Tenor, a Quote to the

Administrator. The Quote is a Model Quote (that is comes from Waterfall Levels 1 – 3) or a Committed

Quote (that is comes from Waterfall Level 4). Transactionality Level is determined as the number of


19

submissions being a Model Quote divided by the number of all contributions in the period covered by

the simulation.

4.2. Parametrization of the Extrapolation Procedure

Parametrization of the Extrapolation Procedure of prices from the Related Markets to the Reference

Market was based on simulation analysis results consisting in simulating index paths for particular

Fixing Tenors with alternative assumptions as to the value of individual parameters. Change in the

value of individual procedure parameters affects both the level of transactionality, responsiveness as

well as the volatility level of the simulated Reference Rates. The described measures have a clear,

both statistical and economic interpretation.

The values obtained through the calibration process of the Extrapolation Procedure are the result of

a trade-off analysis between the described measures as well as the result of a consultation process

with a wide range of stakeholders aimed at confirming that the resulting procedure parametrization

is accepted in particular by the market participants and the supervisory bodies. The interpretation of

the analysis of value change around the assumed parametrization should not raise any doubts either.

Adopting shorter durations for the time window, from which the Transaction Data used for the

extrapolation come from, reduces the frequency of conducting extrapolations, thereby reducing the

transactionality level. The adoption of a parameter defining the minimum number of transactions

necessary to perform the extrapolation is the result of stability analysis of the calculated spans

combined with the responsiveness of the method. Distribution of this minimum number of

transactions over the minimum number of different days that they come from is intended to limit the

effect of the unique nature of the single day on the outcome of calculating the span between the

markets. In particular, setting lower values for the parameters regarding the minimum number of

transactions and the minimum number of days which these transactions originate from, reduces

transactionality and, if extrapolation is used, increases the volatility of the calculated spans between

the markets.

5. Proposal for clarifying the Waterfall Method – strengthening Waterfall

Method (MKD) resilience in the segment of the Committed Quotes

At the request of some Fixing Participants, GPW Benchmark S.A. presented alternative scenarios for

extending the methodological assumptions for the Waterfall Method regarding mitigation of the

possible manipulation risk of WIBID and WIBOR Reference Rates.

Clarification of the method was related to a narrow market segment between the Fixing Participants

regarding the Committed Quotes and the transactions performed during the Transaction Window due

to the Fixing Participants' obligation to conclude transactions resulting from the Code of Conduct.

The question to the Fixing Participants took account of the possibility to:

introduce the Local Incremental mechanism as in the case of a similar parameter introduced

in the Consultation Paper for the whole set of the transaction data,

exclude extreme transactions as in the case of rejecting extreme Quotes in the Fixing

calculation method, according to the current Regulations for Reference Rates.

Due to the lack of clear support for any of the variants from the Fixing Participants, GPW Benchmark

did not make the decision to implement this assumption.


20

6. Conclusions from answers to the questions included in the Consultation

Paper

The Waterfall Method that constitutes detailed rules for preparing the input data in the form of Model

Quotes, gained widespread support of the surveyed participants but first of all of the Fixing

Participants, who will implement proposal for clarification of the preparation process of the input data

used for WIBID and WIBOR Reference Rate Fixing calculation. Due to the lack of clear support from

the Fixing Participants for question no. 4 (In view of the presented results, do you agree with the

Baseline Variant parameters as ensuring adequate transactionality at acceptable volatility?)

presented in the Consultation Paper, GPW Benchmark recognized as justified to conduct an

additional stage of consultations with the Fixing Participants in order to clarify the

assumptions concerning Waterfall Method (MKD) parametrization.

Information contained in the comments related to technical issues, including transaction data, will

be included in the updated reference rates documentation and, in particular, in the annexes to the

Code of Conduct describing the principles for preparation and verification of the input data.

The intent of GPW Benchmark as the entity providing WIBID and WIBOR Reference Rates, the

Waterfall Method, as a tool constructed to adjust the current process of input data preparation, is

also intended to clearly reflect the Fixing Participants' intentions regarding interpretation of

information coming from the money market.

7. The stage of consultations with the Fixing Participants regarding

detailed principles of input data preparation

Consultations conducted with the Fixing Participants were intended to attain an agreement regarding

the proposed values of the primary Waterfall Method (MKD) parameters when determining boundary

conditions referring to the level of representativeness and the descriptive statistics of the obtained

simulation results.

In order to ensure additional resilience to the manipulation risk and limit volatility of WIBID and

WIBOR reference rates as well as bearing in mind the maintenance of the level of representativeness

of the reference rate calculation method but first of all Waterfall Method (MKD) as the input data

preparation process, it was proposed to clarify the Extrapolation Procedure within Variant A,

consisting in the application of a moving average for the Transaction Factor from Related Markets.1

In order to ensure as adequate level of representativeness of WIBID and WIBOR reference rates as

possible, GPW Benchmark at the same time considered the possibility of extending the scope of the

Related Markets with the Large Enterprises segment using the process, identical with one adopted in

Variant A, of smoothing with a moving average.2

1 The clarification of the extrapolation procedure in the form of a moving average does not affect the transactionality level of the Variant. 2 The support for Variant 3 would result in a significant departure from the Baseline Variant (due to the extension of the scope of the Related Markets) and could imply reopening of public consultations.


21

Question no. 1. Which solution (1 to 3) is preferred by your

institution (no more than two options are possible)?

The variant chosen

by so many Fixing

Participants

1. Baseline Variant 4

2. Variant A (1.b) Transaction Factor Smoothing for Model Quotes

from Related Markets (FI, OFI) with a 5-day moving average 8

3. Variant B (2.g) Baseline Variant extended with the Related

Market in the form of large enterprises, parametrization as in the

Baseline Variant, but the Incremental Parameter is 3, plus 3-day

smoothing for all Related Markets (FI, OFI, Enterprises) was

applied

0

The majority of the Fixing Participants opted for the solution described in Variant A, i.e. the

parametrization proposal presented in the Baseline Variant extended by the clarified Extrapolation Procedure, consisting in using a moving average for the Transaction Factor from the Related Markets.

8. Summary

GPW Benchmark S.A. hereby closes the consultation period in the scope of the Consultation Paper within the WIBID and WIBOR Reference Rates adjustment process.

The Waterfall Method, stating the detailed rules for preparing the input data in the form of Model Quotes will be parameterized in accordance with the assumptions presented in the Consultation Paper (Incremental Parameter on level 1, volume threshold on level PLN 1 million) with the implementation of Extrapolation Procedure clarification, which consists in using a moving average for the Transaction Factor from the Related Markets.

In accordance with the results of consultations, GPW Benchmark is starting to prepare new documentation on WIBID and WIBOR Reference Rates in accordance with the requirements of the BMR Regulation concerning the application procedure for the obtaining authorization to perform as the interest rate benchmark Administrator, including WIBOR as a critical interest rate benchmark.

Documents

WIBID AND WIBOR UNDER THE BENCHMARK REGULATION … · 2019-12-27 · Model Quotes determine the interest rate at which a Fixing Participant may accept (Model Quote bid Rate) or place