Developments in the Telbor (Tel Aviv Inter-Bank Offer Rate) Market

27.7.2008
 
Developments in the Telbor (Tel Aviv Inter-Bank Offer Rate) Market
 
  The Telbor Committee, appointed by the Bank of Israel to regularize the Telbor market, in July 2008 changed the rules relating to banks’ commitment to carry out deals at the quoted interest rates. This was done to make their commitment effective, thus raising the credibility of the Telbor interest rate that is based on those rates.
  As a result of the regularization of the Telbor market, the volume of futures transactions on the interest rate has risen considerably. The public in Israel, and in particular companies, now have greater access to an efficient instrument that offers protection against unexpected changes in the Bank of Israel interest rate.
  The Telbor Committee recommends that the Ministry of Finance and the Tel Aviv Stock Exchange change the definition of the underlying asset of a variable interest bond and of futures on the short-term interest rate, in which there is a low volume of activity, and create assets based on the Telbor rate, which are more attractive and similar to those common in the developed countries.
The Telbor rate is the Israeli equivalent of the Libor rate, which is used as the underlying asset in the interest-rate futures market, one of the largest and most liquid financial markets in the developed countries.
In order to promote the development of the money market in Israel, the Bank of Israel, in cooperation with the Tel Aviv Stock Exchange and representatives of the banks, appointed a Telbor Committee to regularize the Telbor market, a central element in the enhancement of the whole money market. The Committee’s main objective is to encourage the commercial banks who quote interest rates in the inter-bank market to act with a commitment and with transparency. The Committee therefore formulated definitions and rules for quotes, drew up a list of quoting banks, and the rules for calculating and publishing the Telbor rates based on the quotes. The interest rates quoted are for periods of a day, a week, a month, and two, three, six, nine, or twelve months. Reuters publishes the rates, thus enabling other providers of financial information in Israel to obtain and publish information on the Telbor.
In light of experienced gained since March 2007, and in order to impose an effective commitment on the banks to the rates they quote, the Committee changed the rules regarding banks’ commitments to carry out transaction at the quoted interest rates. The rules that went into effect in July specify that the quoted interest rates will be binding in swaps between floating and fixed interest and forward transactions of up to NIS 50 million. The Committee determined sanctions against banks that refuse to make deals under the conditions described, and against banks that quote exceptional rates of interest.
The rules and definitions determined by the Committee, as well as the minutes of the Committee meetings, can be seen on the Bank of Israel website.

As a result of the Committee’s activities, especially the changes in made in the rules and bank’s commitments, trade in the short-term interest rate futures market has increased markedly. This means that interest rate risks can be managed more efficiently, and in particular, it offers a defense against unexpected changes in the Bank of Israel interest rate. In addition, the commercial banks now offer their customers deposits and structured products based on the shekel interest rate, i.e., the Telbor rate.
Against the background of these developments, the Telbor Committee recommends that the Ministry of Finance and the Tel Aviv Stock Exchange change the definition of the underlying asset of a variable interest bond and of futures on the short-term interest rate, in which there is a low volume of activity, and create assets based on the Telbor rate, which are more attractive and similar to those common in the developed countries.