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| Minutes of the Telbor Committee Meeting 3 July 2007 |
| Present: Sharon Lavy, Ilan Viskin, Roy Stein, Simcha Hochman, Zahi Elias |
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| 1. |
Messrs. Viskin and Elias reported that the commitment of contributors to submit “correct” reports in Telbor has risen, and so too have transactions in interest-rate derivatives based on Telbor. They also reported that it is planned to issue corporate Telbor-based bonds. Mr. Stein said that he had obtained a similar picture from his discussions with several managers of dealing rooms––a rise in deals in Telbor derivatives and in the credibility of quotes. |
| 2. |
In the light of the rules set by the committee under which contributors undertake to carry out deals, credit and deposit transactions are carried out for a period of one business day (overnight, or O/N), and hardly any derivative (as defined by the committee for quotation obligations) take place. The reason, it appears, is that it is not profitable to carry out such transactions. The committee will therefore consider changing the rules and redefining the undertaking to carry out transactions for longer than O/N. Three possibilities were raised, and the committee will discuss them at its next meeting: |
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(a) |
To raise the commitment to FRA deals (currently NIS10 million). |
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(b) |
Imposing an additional, three-month undertaking to a credit/deposit transaction. The reason underlying this proposal is that the undertaking regarding a credit transaction is problematic because there are credit-risk differences between the various contributors. It was therefore suggested not to impose it for all periods, but just on one additional period, of three months. |
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(c) |
Imposing an undertaking for Overnight-Index Swaps based upon the O/N TELBOR Rate. This is apparently the undertaking that is most effective in maintaining the credibility of quotes, but the computer systems of the contributing banks do not yet support these transactions. As they constitute the best undertaking, however, it is worth striving towards computer support in this area. |
| 3. |
Ms. Hochman of the Bank of Israel presented data derived from the IT system developed to monitor Telbor quotes. The tables showed the extent to which the contributors met the requirement to quote between 10:00 and 17:00. It was agreed that Mr. Viskin will put this matter up for discussion at the next meeting of Forex–Israel, drawing the attention of those contributors who fall significantly short of the undertaking. It was also agreed that contributors should make greater efforts to abide by the rules, and that the Telbor Committee will continue to monitor the quotes, and will consider imposing sanctions upon those participants deviating significantly from the undertaking in the future. |
| 4. |
Complaints––The committee discussed a number of complaints received from contributing banks in March (the month when the reform in Telbor interest was introduced). These banks had wanted to carry out deals at the quoted interest rate, but the quoting contributor had not responded. After examining this matter the committee came to the conclusion that these were teething problems of the new system, as apart from those initial complaints in March, no further complaints had been received. |
| 5. |
Traded futures––The committee discussed an issue that was earmarked as one of the prime objectives of the reform, i.e., substituting the Telbor interest rate for the 90-day interest on makam as the underlying asset of traded futures in the Tel Aviv Stock Exchange (TASE). It was agreed that in the light of the increase in activity in Telbor-based derivatives, Ms. Lavy will bring this question to the attention of the management of the TASE. It was agreed that at its next meeting the committee will discuss ways of avoiding manipulation of the Telbor interest rate on the expiry date of futures. |
| 6. |
The committee recommends that the Bank of Israel should operate a database of Telbor-based interest derivative transactions so that the development of the market can be monitored. The Bank would give an undertaking to the contributors who would provide the data for the database that it will not divulge their specific details, but will publish only the overall figures. The database would serve a number of purposes: |
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(a) |
Analyses of activity in interest rate derivatives and market barriers and failures. |
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(b) |
Follow-up of current developments for purposes of monetary policy. |
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(c) |
Grading the list of contributors according to the extent of their activity. |
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Next month the Bank of Israel will send a detailed request for data on Telbor derivative deals together with an Excel file to be used by the banks for transferring the information to the Bank of Israel. |
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