The most important steps of BUBOR reforms led by the Central Bank of Hungary in an international comparison

What do interbank reference rates show and why do they play a prominent role? Why was the reform of BUBOR (Budapest Interbank Offered Rate) necessary and what were the reform steps taken by the central bank of Hungary (Magyar Nemzeti Bank – MNB) ? In this study, we seek answers to these and similar questions, while also providing an overview of international reform measures. The aim of the reforms initiated by the central bank was to eliminate the main risks arising in connection to the use of LIBOR (London Interbank Offered Rate) methodology in the domestic environment. Reference rates are considered public goods and economic sectors have financial contracts of considerable value indexed to BUBOR; numerous legal regulations also refer to BUBOR. One of the most important reform measure was to establish the Quotation Committee within the Hungarian Forex Association (MFT), in order to strengthen the independence of the administrator. The members of the Quotation Committee include the central bank of Hungary and the delegated parties of the Hungarian Banking Association (HBA). Important changes were made in the methodology of BUBOR in compliance with international practice: (i) the so-called trimming procedure was adjusted to improve the availability and reliability of price quotations;(ii) the number of listed tenors were reduced; and (iii) the methodology of selecting BUBOR market makers was confirmed. In order to make BUBOR quotations more transparent, the central bank of Hungary publishes quotations for each panel bank through the REUTERS press agency and regularly prepares and publishes statistical reviews on whether quotations comply with market conditions. In addition to this, the minutes of the Quotation Committee meetings are public since the first session in July 2014.