Recent Developments
Borsa İstanbul A.Ş. ("Borsa Istanbul") created the Turkish lira overnight reference interest rate ("TLREF").
What's the TLREF?
- In July of 2017, Andrew Bailey, the chief executive of the UK Financial Conduct Authority (the "FCA"), announced in a speech that after 2021 the FCA would no longer use its power to compel panel banks to submit rate information used to determine the London Interbank Offered Rate ("LIBOR"). Mr. Bailey encouraged the market to develop robust alternative reference rates to replace LIBOR.
- Since the world's most well-known indicative interest rate, LIBOR, will be unavailable after 2021, countries are making efforts to generate systems based on overnight interest rates that cannot be manipulated. Alternatives including SONIA, EONIA, €STER, SARON, SOFR are being discussed and implemented.
- The TLREF Committee, consisting of the representatives of the Ministry of Treasury and Economy, The Central Bank, The Turkish Banks Association, The Turkish Capital Markets Association and Borsa Istanbul have formulated the TLREF Rules. These rules can be reviewed at here.
- The TLREF will be calculated by using the overnight repo transactions, secured by Turkish lira denominated government debt securities and realized on the Borsa Istanbul Repo-Reverse Repo Market, with the starting value date of the same day. The TLREF will be used as an indicator or a benchmark in financial products, debt instruments and various types of financial contracts.
- In this regard, T.C. Ziraat Bankası A.Ş., Türkiye Vakıflar Bankası T.A.O. and Alternatifbank A.Ş. issued debt instruments indexed to TLREF for 750 million, 500 million and 50 million Turkish lira, respectively.
- The General Manager of Borsa Istanbul, Murat Çetinkaya, stated that they identified this moment as an opportunity for the Turkish lira and created TLREF, which will be a highly transparent rate as it is generated from transactions in the organized market.
- Also, futures contracts based on TLREF can be traded in the Borsa Istanbul Derivatives Market (Vadeli İşlemler ve Opsiyon Piyasası) now.
- The data of TLREF rate and BIST TLREF Index which is created in order to track the returns of TLREF rate that is calculated by using the overnight repo transactions, that are secured by TL denominated government debt securities and realized on the Borsa Istanbul Repo-Reverse Repo Market, with the starting value date of the same day, can be reached from BISTECH Data Dissemination System and "TLREF Data" link.
Conclusion
TLREF aims to enable banks to manage their interest risks without utilizing foreign exchange liquidity. Once TLREF becomes widespread, long-term Turkish lira loans can also be extended to borrowers and consequently diminish the total exchange rate risk of the real sector.
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