DOCSLIB.ORG

LIBOR Transition a Practical Guide December 2020 Edition

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
LIBOR Transition a Practical Guide December 2020 Edition SH-Presentations Client Guide (UBS Format) UNAPPROVED v6.0.10.docx LIBOR Transition A practical guide December 2020 Edition December, 2020 1 SH-Presentations Client Guide (UBS Format) UNAPPROVED v6.0.10.docx Table of Contents 1. LIBOR Transition: Executive Summary_______________________________________________ 4 What does this document seek to do? _________________________________________________ 4 Summary _________________________________________________________________________ 4 Practical considerations checklist ______________________________________________________ 4 Key highlights _____________________________________________________________________ 4 What's next? ______________________________________________________________________ 4 2. LIBOR Transition: Facts and Figures _________________________________________________ 5 What is LIBOR? ____________________________________________________________________ 5 Where is LIBOR used? _______________________________________________________________ 5 What is happening to LIBOR and by when? _____________________________________________ 5 What has the response been to date? __________________________________________________ 6 What are the main Alternative Reference Rates? _________________________________________ 6 How do these ARRs differ to LIBOR? ___________________________________________________ 8 Are these ARRs secured or unsecured? _________________________________________________ 8 Will the ARRs have forward looking term structures? _____________________________________ 8 What are ARR Compounded Index Rates? ______________________________________________ 8 What about the other IBOR Benchmark Rates? __________________________________________ 9 Summary and Practical Considerations _________________________________________________ 9 3. LIBOR Transition: Discounting Risk ________________________________________________ 10 What is discounting risk? ___________________________________________________________ 10 What changes have the CCPs made? _________________________________________________ 10 What are the implications for CSAs? __________________________________________________ 10 Why will these changes drive an increased Bilateral Negotiation of CSAs? ___________________ 10 When will UBS be ready to open CSA negotiations? _____________________________________ 11 What is the impact on swaption contracts? ____________________________________________ 11 Summary and Practical Considerations ________________________________________________ 11 4. LIBOR Transition: Forecasting Risk _________________________________________________ 12 What is Forecasting Risk? ___________________________________________________________ 12 What are the Fallback Provisions? ____________________________________________________ 12 What are some examples of differing fallback methods? _________________________________ 13 How will the LIBOR transition affect new contracts executed under the updated ISDA Definitions?13 How will the LIBOR transition affect the existing contracts? _______________________________ 13 2 SH-Presentations Client Guide (UBS Format) UNAPPROVED v6.0.10.docx What is expected to happen to cleared contracts? ______________________________________ 14 How will the LIBOR transition affect products other than OTC derivatives? __________________ 14 How could hedge effectiveness across asset classes via linked transactions be affected by the LIBOR transition? _______________________________________________________________________ 14 What is the ISDA LIBOR to ARR adjustment? ___________________________________________ 14 What are the ARRC's recommended best practices? _____________________________________ 14 What is Pre-Cessation? _____________________________________________________________ 15 What is 'Synthetic LIBOR'? __________________________________________________________ 15 What are the implications of 'Synthetic LIBOR' on Transition? _____________________________ 15 What are the latest expected publication dates for LIBOR?________________________________ 16 Why is the Transition challenging for certain products? __________________________________ 16 Why might these Forecasting Risk changes drive increased bilateral/ multilateral negotiation? __ 16 What are the main drivers that may determine the impact on Forecasting Risk? ______________ 16 Summary and Practical Considerations ________________________________________________ 17 5. Regulatory and Market Milestones ________________________________________________ 18 6. Regulatory and Market Milestones Continued ______________________________________ 19 7. Appendix _______________________________________________________________________ 20 ARRC Recommended Best Practices __________________________________________________ 20 FINMA’s Recommendations and Transition Roadmap for 2021 ____________________________ 21 BoE RFR Working Group - Revised target milestones to manage transition away from Sterling LIBOR linked products by end 2021 ___________________________________________________ 23 Other IBORs Benchmark Rates _______________________________________________________ 25 Overnight Index Swap Industry Definitions _____________________________________________ 28 ARR detailed information ___________________________________________________________ 28 8. Bibliography ____________________________________________________________________ 29 9. Glossary ________________________________________________________________________ 31 10. Disclaimer _______________________________________________________________________ 32 11. Contact information _____________________________________________________________ 33 3 SH-Presentations Client Guide (UBS Format) UNAPPROVED v6.0.10.docx 1. LIBOR Transition: Executive Summary What does this document seek to do? This guide aims to give UBS clients an understanding of the LIBOR transition and highlights the practical considerations that should be taken into account. This communication is not sent to you in connection with any wealth management, corporate or institutional client or asset management relationship you may have with UBS. Summary Regulators have announced that the market should stop relying on LIBOR. Each of the Alternative Reference Rates (ARRs) for the five major currencies (USD, EUR, GBP, CHF, JPY) involved is at a different stage in terms of development and liquidity. Other currencies' alternative rates are also being developed but the initial focus has been on these five. The industry needs to understand, prepare and execute with respect to this market change. LIBOR is used as a reference rate in a multitude of products and links, for example between a derivative and an underlying asset, need to be considered in order to understand potential basis risk between LIBOR and the new ARR. In addition to migration of transactions, industry changes in discounting methodology are underway and changes in technology systems may be required. UBS aims to keep clients informed of these changes and is running an extensive internal change programme focussed on this transition. Note that EURIBOR and TIBOR are expected to remain in the medium term so industry focus is on the other rates. Practical considerations checklist • Understand what this change means for you: – Analyse the exposure you currently have to LIBOR and assess the potential financial impact – Ensure you know where you have transactions which you believe to be linked (see Forecasting Risk Section) – Review the fallback language in your Legal Documentation (see Forecasting Risk Section) • Review your readiness: – Evaluate whether you need to make any changes to your risk management systems – In addition, consider any operational processes you may need to update, for example ensuring all reference data sources are updated accordingly – Consider consolidating your LIBOR exposure to reduce the number of bi-lateral transitions required Key highlights Facts and Figures Discounting Risk Forecasting Risk • 5 ARRs have been identified • Discounting rate and interest paid • Updated ISDA Definitions and IBOR to replace the 5 LIBOR on collateral usually aligned Fallbacks Protocol were published currencies • CCPs have now switched 23 October 2020 and become • Each ARR is an overnight rate discounting rates to ARRs and this effective on 25 January 2021 • The ARRs are backward is likely to be a key driver for • Differences in fallback methodology looking rates increased adoption of ARRs across different product types may • Adjustment methodology across the industry impact hedge effectiveness across agreed to address the • Any changes to the margin annex transactions believed to be linked differences (term and credit) for a derivative contract should • Evaluation of current contractual between LIBOR and ARRs reference the new ARR to replace fallback provisions may lead to existing cash margin rate increased bilateral discussion What's next? When relevant, UBS will be contacting you in due course on the following topics: • Trades with UBS referencing LIBOR; • Contracts with UBS which reference a transitioning benchmark If you have any further questions, in the first instance please contact your sales representative. Alternatively, please get in touch via [email protected]. 4 SH-Presentations Client Guide (UBS Format) UNAPPROVED v6.0.10.docx 2. LIBOR Transition: Facts and Figures What is LIBOR? The London Interbank Offered Rate (LIBOR) is calculated from submissions by selected "panel" banks1 of the rates they either pay or would expect to pay to borrow from
Load more

Recommended publications
  • Interbank Offered Rates (Ibors) and Alternative Reference Rates (Arrs)
    VERSION: 24 SEPTEMBER 2020 Interbank Offered Rates (IBORs) and Alternative Reference Rates (ARRs) The following table has been compiled on the basis of publicly available information. Whilst reasonable care has been taken to ensure that the information in the table is accurate as at the date that the table was last revised, no warranty or representation is given as to the information in the table. The information in the table is a summary, is not exhaustive and is subject to change. Key Multiple-rate approach (IBOR + RFR) Moving to RFR only IBOR only Basis on Development of Expected/ Expected fall which forward-looking likely fall- back rate to IBOR is Expected ARR? back rate to the ARR (if 3 Expected being Date from date by the IBOR2 applicable) discontinu continued which which ation date (if Alternative ARR will replaceme for IBOR applicable Reference be nt of IBOR Currency IBOR (if any) )1 Rate published is needed ARS BAIBAR TBC TBC TBC TBC TBC TBC TBC (Argentina) 1 Information in this column is taken from Financial Stability Board “Reforming major interest rate benchmarks” progress reports and other publicly available English language sources. 2 This column sets out current expectations based on publicly available information but in many cases no formal decisions have been taken or announcements made. This column will be revisited and revised following publication of the ISDA 2020 IBOR Fallbacks Protocol. References in this column to a rate being “Adjusted” are to such rate with adjustments being made (i) to reflect the fact that the applicable ARR may be an overnight rate while the IBOR rate will be a term rate and (ii) to add a spread.
    [Show full text]
  • Notice of Listing of Products by Icap Sef (Us) Llc for Trading by Certification 1
    NOTICE OF LISTING OF PRODUCTS BY ICAP SEF (US) LLC FOR TRADING BY CERTIFICATION 1. This submission is made pursuant to CFTC Reg. 40.2 by ICAP SEF (US) LLC (the “SEF”). 2. The products certified by this submission are the following: Fixed for Floating Interest Rate Swaps in CNY (the “Contract”). Renminbi (“RMB”) is the official currency of the Peoples Republic of China (“PRC”) and trades under the currency symbol CNY when traded in the PRC and trades under the currency symbol CNH when traded in off-shore markets. 3. Attached as Attachment A is a copy of the Contract’s rules. The SEF is listing the Contracts by virtue of updating the terms and conditions of the Fixed for Floating Interest Rate Swaps submitted to the Commission for self-certification pursuant to Commission Regulation 40.2 on September 29, 2013. A copy of the Contract’s rules marked to show changes from the version previously submitted is attached as Attachment B. 4. The SEF intends to make this submission of the certification of the Contract effective on the day following submission pursuant to CFTC Reg. 40.2(a)(2). 5. Attached as Attachment C is a certification from the SEF that the Contract complies with the Commodity Exchange Act and CFTC Regulations, and that the SEF has posted a notice of pending product certification and a copy of this submission on its website concurrent with the filing of this submission with the Commission. 6. As required by Commission Regulation 40.2(a), the following concise explanation and analysis demonstrates that the Contract complies with the core principles of the Commodity Exchange Act for swap execution facilities, and in particular Core Principle 3, which provides that a swap execution facility shall permit trading only in swaps that are not readily susceptible to manipulation, in accordance with the applicable guidelines in Appendix B to Part 37 and Appendix C to Part 38 of the Commission’s Regulations for contracts settled by cash settlement and options thereon.
    [Show full text]
  • LIBOR Transition - Impacts to Corporate Treasury
    LIBOR Transition - Impacts to Corporate Treasury April 2019 What is happening to LIBOR? London Interbank Offered Rate (LIBOR) is a benchmark rate that some of the world’s leading banks charge each other for unsecured loans of varying tenors. In 2017, Financial Conduct Authority stated that it will no longer compel banks to submit LIBOR data to the rate administrator post 2021 resulting in a clear impetus and need to implement alternative risk-free rates (RFR) benchmarks globally. End of LIBOR LIBOR transition 2019 - 2021 Post 2021 Risk-free rates SOFR (U.S.) LIBOR (RFR) Phase-out RFRs • an unsecured rate at which banks and SONIA (U.K.) • rates based on secured or unsecured ostensibly borrow from one another transactions replace ESTER (E.U.) • a rate of multiple maturities with… • overnight rates • a single rate Other RFRs… • different rates across jurisdictions How about HIBOR? Unlike LIBOR, the HKMA currently has no plan to discontinue HIBOR. The Treasury Market Association (TMA) has proposed to adopt the HKD Overnight Index Average (HONIA) as RFR for a contingent fallback and will consult industry stakeholders later in 2019. © 2019 KPMG Advisory (Hong Kong) Limited, a Hong Kong limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong. 2 How do I know who is impacted? Do you have any floating rate Do you have any derivative loans, bonds, or other similar contracts (e.g. interest rate Do you need to calculate financialEnsure they instruments have difficult with swap) with an interest leg market value of financial an interestconversations rate referenced to referenced to LIBOR? positions (e.g.
    [Show full text]
  • Yi Gang: the Development of Shibor As a Market Benchmark (Central
    Yi Gang: The development of Shibor as a market benchmark Speech by Mr Yi Gang, Deputy Governor of the People’s Bank of China, at the 2008 Shibor Work Conference, Beijing, 11 January 2008. * * * Thank you for your presence. Since its launch one year ago, Shibor has made remarkable progress. I’d like to share with you some of my observations. First, Shibor is for market participants. At the initial stage, central bank promotion is necessary. But Shibor, as a market benchmark, belongs to the market and all the market participants. All parties concerned including financial institutions, National Inter-bank Funding Center, National Association of Financial Market Institutional Investors shall have a full understanding of this, and actively play a role in the operations of Shibor as stakeholders. The success of Shibor relies on the joint efforts of all the stakeholders. Under the command economy, the central bank is the leader while commercial banks are followers. But from the current perspective of the central bank’s functions, the bipartite relationship varies on different occasions. In terms of monetary policies, the central bank, as the monetary authority, is the policy maker and regulator, while commercial banks are market participants and players. But in terms of market building, the relationship is not simply that of leader and followers, but of central bank and commercial banks in a market environment. This broad positioning and premise will have a direct bearing on how we behave. On the one hand, it requires the central bank to work as a service provider, a general designer and supervisor of the market.
    [Show full text]
  • An Empirical Study on the Linkage Between Offshore and Onshore
    2017 2nd International Conference on Modern Economic Development and Environment Protection (ICMED 2017) ISBN: 978-1-60595-518-6 An Empirical Study on the Linkage Between Offshore and Onshore Interbank Offered Rate Wen-wen ZENG Nanjing University of Science and Technology, Nanjing, Jiangsu, China [email protected] Keywords: CNH-HIBOR, SHIBOR, Linkage, VAR Model. Abstract. This article uses Granger causality test and vector autoregression model to investigate the linkage between SHIBOR and CNH-HIBOR. The results showed that the existence of linkage between two short-term varieties, long-term varieties did not show linkage, and the offshore market has an impact on the onshore market, short-term maturity varieties respond more rapidly to impacts, while long-term maturity varieties respond to impacts that take a long time to digest. The results show that the linkage between China’s inter-bank lending rate and the onshore market is gradually increasing, it’s need to further strengthen SHIBOR’S s the basic position, and constantly improve the quotation mechanism and relax offshore market restrictions. 1. Introduction CNH-Hongkong Inter-bank Offered Rate (CNH-HIBOR) reflects the interest rate level of the offshore RMB market. If the offshore market and onshore market interest rates spread too much, it can easily lead to arbitrage, which is not conducive to the stability and security of the market economy stability and security. Therefore, studying the linkage of inter-bank lending rates will be conducive to promoting marketization of interest rates. The domestic research on the inter-bank lending rate mainly focuses on three aspects: factors that influence the inter-bank lending rate [1]; benchmark interest rate [2,3]; volatility of the inter-bank lending rates [4-7].
    [Show full text]
  • Interest Rate Benchmark Reform in Japan
    January 30, 2020 Bank of Japan Interest Rate Benchmark Reform in Japan Speech at the Kin′yu Konwa Kai (Financial Discussion Meeting) Hosted by the Jiji Press AMAMIYA Masayoshi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) 0 Introduction Good afternoon, everyone. It is my pleasure to have the opportunity to speak to you today about the interest rate benchmark reform. The term "interest rate benchmark" may not sound familiar to those who are not engaged in financial businesses. It refers to a rate that reflects the prevailing market rates and serves as the base rate when determining the price of financial transactions. The most famous and widely used interest rate benchmark around the world is the London Interbank Offered Rate, or LIBOR, which is calculated based on the interest rates of interbank transactions in London. LIBOR is presently published for seven tenors ranging from overnight to 12 months, and for five currencies: the U.S. dollar (USD), British pound (GBP), Euro (EUR), Swiss franc (CHF), and Japanese yen (JPY). There are other interest rate benchmarks based on interbank offered rates, such as TIBOR, which is the Japanese yen interest rate benchmark published in Tokyo, and the EURIBOR, which is the Euro benchmark published in the Euro area. Recently, we have also seen the publication for major currencies of overnight interest rate benchmarks called "risk-free rates," which are literally interest rates that are not affected by credit risk. Interest rate benchmarks are actually used in large volume and a broad range of financial transactions including loans, bonds, and derivatives (Figure 1).
    [Show full text]
  • EUROPEAN COMMISSION Brussels, 18.9.2013 SWD(2013) 336 Final COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying Th
    EUROPEAN COMMISSION Brussels, 18.9.2013 SWD(2013) 336 final COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on indices used as benchmarks in financial instruments and financial contracts {COM(2013) 641 final} {SWD(2013) 337 final} EN EN TABLE OF CONTENTS 1. INTRODUCTION ...................................................................................................................................................................1 2. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES....................................................................................2 2.1. CONSULTATION OF INTERESTED PARTIES ..................................................................................................................................2 2.2. STEERING GROUP...............................................................................................................................................................2 2.3. IMPACT ASSESSMENT BOARD ...............................................................................................................................................3 3. POLICY CONTEXT .................................................................................................................................................................3 3.1. THE CURRENT EU LEGISLATIVE FRAMEWORK ON BENCHMARKS ......................................................................................................3 3.2. NATURE
    [Show full text]
  • Interbank Rate Fixings During the Recent Turmoil1
    Jacob Gyntelberg Philip Wooldridge +852 2878 7145 +852 2878 7155 [email protected] [email protected] Interbank rate fixings during the recent turmoil1 The turmoil in global interbank markets in the second half of 2007 raises questions about the robustness of interbank rate fixings. A comparison of alternative fixings for similar interest rates confirms that they diverged to an unusual extent. Nevertheless, the design of fixing mechanisms worked as intended to moderate the influence of strategic behaviour and changing perceptions of credit quality. JEL classification: F30, G12, G15. The evaporation of liquidity in the term segment of major interbank markets in the second half of 2007 raises questions about the reliability of rate fixings purported to represent conditions in these markets. Financing for terms of more than a few days was reportedly not readily available at some commonly referenced interest rates, such as the London interbank offered rate (Libor). A comparison of alternative fixings for similar interest rates confirms that, during the recent turbulence, Libor diverged from other reference rates to an unusual extent. A deterioration in market liquidity, an increase in interest rate volatility and differences in the composition of the contributor panels were the main causes of the divergence. Nevertheless, the design of the fixing mechanism moderated the influence of extreme quotes from contributor banks, as intended. Below, we first discuss the role of money market benchmarks in financial markets. The following section compares the design of different interbank fixings and considers the incentives banks face to contribute accurate quotes. We then examine the influences on fixings during the market turmoil in the second half of 2007.
    [Show full text]
  • IBOR Transition Monthly Update January 2021
    The following provides a collection of relevant publications for transition to new reference rates related to the following currencies: USD, Euro, Japanese Yen, British Pound, Swiss Franc, Australian Dollar, Singapore Dollar, HK Dollar, Brazilian Real, Canadian Dollar, Mexican Peso, South African Rand, China/SHIBOR and Indonesia/JIBOR.* January 2021 GFMA, ASIFMA, AFME, SIFMA ASIFMA Virtual Event (in Collaboration with the Association of Banks in Singapore) on the IBOR Transition in Singapore (February 2, 2021) ASIFMA is hosting a virtual event in collaboration with the Association of Banks in Singapore focusing on the IBOR transition in Singapore. Further details and registration are available on the ASIFMA event page. AFME, ASIFMA, and SIFMA Submit Response to IBA Consultation on Timeline of Cessation of Published LIBOR Fixings (January 25, 2021) AFME, ASIFMA, and SIFMA submitted a joint response to the Ice Benchmark Administration (IBA) consultation on the timeline for the potential cessation of published LIBOR fixings (see Global section below for consultation details). The submission expressed support for the proposed cessation plan. The full text of the response can be found here. ASIFMA Publishes IBOR Transition Readiness Survey Results and Action Plan (January 7, 2021) ASIFMA conducted a survey aiming at identifying external frictions of concern that may present potential challenges to IBOR readiness in ASIA. ASIFMA, in partnership with law firm Ashurst, published a paper providing the consolidated results of this survey and an action plan based on these results. AFME Publishes “Call to Action” for Active Transition of LIBOR Linked Securitisations (January 6, 2021) AFME produced a blog calling on market participants to reduce the stock of “tough legacy” securitisations to the “irreducible core” well in advance of the end of 2021.
    [Show full text]
  • IBOR Transition Monthly Update
    The following provides a collection of relevant publications for transition to new reference rates related to the following currencies: USD, Euro, Japanese Yen, British Pound, Swiss Franc, Australian Dollar, Singapore Dollar, HK Dollar, Brazilian Real, Canadian Dollar, Mexican Peso, South African Rand, China/SHIBOR and Indonesia/JIBOR.* April 2020 Global ISDA Announces Preliminary Results of its Consultation on Pre-cessation Fallbacks for LIBOR (April 15, 2020) ISDA announced that the preliminary results of its consultation on pre-cessation fallbacks for LIBOR show that there is a significant majority of respondents that are in favor of including both pre-cessation and permanent cessation fallbacks as standard language in the amended 2006 ISDA Definitions for LIBOR. The results are subject to further analysis, however ISDA currently expects to move forward on the basis that these fallbacks would apply to all new legacy derivatives referencing LIBOR that incorporate the amended 2006 ISDA Definitions. FSB Provides Update on Report to G20 Finance Ministers and Central Bank Governors (April 14, 2020) FSB Chair, Randal K. Quarles, sent a letter to the G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 15 April 2020. The letter provides an update on the FSB’s response to COVID-19 and also includes information on ongoing FSB policy work to promote a global financial system that supports a strong recovery after the crisis, including a section on the IBOR transition. As a part of this section, the letter states that the FSB plans to provide a report in July to the G20 Finance Ministers and Central Bank Governors highlighting supervisory measures being taken, as well as the remaining challenges to transition and how these will be handled.
    [Show full text]
  • CNH Market Guide Vol
    CNH Market Guide Vol. 2 rbs.com/mib How did the offshore renminbi (CNH) market come to wield such influence on the onshore foreign exchange (FX) market? Since May 2012, USD/CNY trading onshore has consistently pulled away from the People’s Bank of China (PBOC) daily fixing rate towards the direction of the offshore deliverable USD/CNH. How did the CNH bond market turn from a seller’s market to a buyer’s market recently? As investors’ expectations switch from FX to bond gains, issuers have aligned coupons to onshore yields. Higher yields in turn have boosted investors’ appetite for longer tenors. The market now offers bonds up to 20-year maturity. A confluence of factors – FX and monetary policy reforms, market deregulation, private sector initiatives, and global politico-economic events – brought about a spectacular transformation of the CNH market in its first five years. How will the next five years look? The next phase will be a steeper climb as China attempts to globalise its offshore CNH franchise before it can reach the final goal of becoming a world reserve currency. This guide is a sequel to the CNH Market Guide – A precursor to internationalisation of the Chinese renminbi, which was first published in March 2011. It addresses the various facets of a market that still stands the chance of becoming the world’s next reserve currency, with a focus on the FX, interest rate and bond markets. This guide provides a review of the developments in the first five years of the CNY internationalisation. It contains details of regulations, products types, market depth and market participants.
    [Show full text]
  • The Transmission of Liquidity Shocks Via China's Segmented Money Market: Evidence from Recent Market Events†
    The transmission of liquidity shocks via China's segmented money market: evidence from recent market events† Ruoxi Lu*, David A. Bessler, and David J. Leatham Department of Agricultural Economics, Texas A&M University, 2124 TAMU, College Station, TX 77843-2124, USA This version: May 18, 2018 Abstract This is the first study to explore the transmission paths for liquidity shocks in China’s segmented money market. We examine how money market transactions create such pathways between China’s closely-guarded banking sector and the rest of its financial system, and empirically capture the transmission of liquidity shocks through these pathways during two recent market events. We find strong indications that money market transactions allow liquidity shocks to circumvent certain regulatory restrictions and financial market segmentation in China. Our findings suggest that a widespread illiquidity contagion facilitated by money market transactions can happen in China and new policy measures are needed to prevent such contagion. JEL Classification: C32; E44; E58; G01; G12; G2 Key words: Money market; Interbank market; Repo; Shibor; Liquidity shock; Transmission † https://doi.org/10.1016/j.intfin.2018.07.005 * Corresponding author. E-mail addresses: [email protected] (R. Lu) 1 © 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license. http://creativecommons.org/licenses/by-nc-nd/4.0/ 1. Introduction The interconnectivity within China’s financial system is generally perceived to be limited compared to the financial systems in the U.S. and the other advanced economies. The direct interactions among different types of financial market participants across different asset markets in China can sometimes be highly restricted or even impossible, due to various degrees of market segmentation and regulatory controls.
    [Show full text]