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Maturity of executable BUBOR quoting extended to six months

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In order to ensure the effectiveness of the monetary transmission mechanism in the case of longer term interest rate benchmarks, the Magyar Nemzeti Bank’s Benchmark Fixing Committee (RJB) decided to modify the BUBOR quotation system. From 2 January 2018, executable quoting, currently applied to the one-month and three-month maturities, will be extended to the six-month maturity. Furthermore, the minimum transaction size will be increased and the fixed bid-offer spread will be narrowed to 10 basis points.

At its meeting on 30 October 2017, the RJB decided to modify the BUBOR Regulation. Since the introduction of the executable quoting system in May 2016, interbank depo market turnover has increased and the information content of the BUBOR has improved. However, there has been a reversal in this trend in recent months. In addition to declining activity, the reaction of longer term BUBOR fixings to market events was slower and less significant than in the case of other indicators. Furthermore, there is no activity in the longer segment of the market, which may impair the effectiveness of monetary transmission across the longer segments of the yield curve.

Against this backdrop, the MNB’s Executive Board requested the RJB to make the necessary modifications in order to strengthen market price discovery in the interbank depo market behind the BUBOR, with a special emphasis on the longer segment.

In line with this mandate, the RJB decided to implement the following changes:

I.   Extend the executable quotation to the six-month maturity;
II.   Increase the minimum transaction size:
        a. from HUF 100 million to HUF 150 million at the one-month maturity;
        b. from HUF 50 million to HUF 100 million at the three-month maturity;
        c. HUF 50 million at the six-month maturity;
III. Reduce the fixed bid-ask spread from 15 basis points to 10 basis points.

The above changes will take effect from 2 January 2018.

The MNB continues to monitor the market behind the BUBOR quotes and is ready to make further steps if necessary.