RBI suggests independent body for forex benchmark

The Reserve Bank on Wednesday suggested setting up of an independent body for recommending benchmark foreign exchange rate to avoid any possibility of manipulation by bankers.

The Reserve Bank of India (RBI) has already advised the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and Foreign Exchange Dealers’ Association of India (FEDAI) to act as administrator of the Indian rupee interest rate and foreign exchange rate benchmarks respectively and to take necessary steps, RBI said in a notification.

“In order to overcome the possible conflicts of interest in the benchmark setting process arising out of the current governance structure of the FIMMDA and FEDAI, an independent body, either separately or jointly, may be formed by the FIMMDA and FEDAI for administration of the benchmarks,” it said.

In case of benchmarks determined based on polled submissions, FIMMDA and FEDAI may select the Benchmark Submitters on the basis of their standing, market share in the benchmark/instrument linked to the benchmark, it said.

Benchmarks like Mumbai Inter-bank Forward Offered rate (MIBFOR), Mumbai Inter-bank Forward Offered rate (MIBOR) are being fixed by FIMMDA and FEDAI.

The benchmark submitters thus selected by the respective administrator have to necessarily participate in the polling process and comply with the various provisions specified in the Code of Conduct, it added.