Rate Validation – AFMA RAVA

August 2012

Information update

In 2009 AFMA was approached by a service provider, related to Rate Validation Services Pty Ltd (RVS), with the concept of a centralised end-of-day rate validation service for the industry. Under the proposal, banks would be able to outsource their existing rate collection and validation activity to a service provider. It was recognised that to ensure the credibility of such a service the rate collection and validation process should be in accordance with agreed market conventions. AFMA was identified by the service provider as the appropriate association to develop and maintain those conventions.

Under the terms of the agreement subsequently made with with RVS, AFMA’s responsibility is to develop the conventions, which may be used by RVS and AFMA member firms and approve the RVS rules for rate validation. AFMA members will not be under any obligation to utilise the services of RVS.

RVS is responsible for developing and delivering the service to subscribers. RVS’s service will focus on end-of-day rates and it proposes to offer banks and other market participants a single system for transparent, multi-sourced and validated end of day prices on financial products across all asset classes including less liquid instruments.

AFMA formed a RAVA Working Group in 2010 to oversee the development of the market conventions and approval of the rules for rate validation. The working group has representation from both trading and risk/finance functions of AFMA members. The draft AFMA Rate Conventions have now largely been completed and are in the process of being reviewed by AFMA’s Market Technical Committees to ensure they accurately reflect the current Australian practice of valuing financial market products.

The Conventions, once approved, will be hosted on AFMA’s website and will cover the majority of financial market products within 5 broad asset classes; Foreign Exchange, Interest Rates, Credit, Commodity Derivatives and Equities.

The RVS service is separate to the existing AFMAdata service produced for the market by AFMA (eg 10:00am Interest Rate Swaps curve), which will continue in their current form. In particular, the RVS service has no implications for the process adopted by AFMA to produce the BBSW rate, which is used as a benchmark price for many financial transactions.

Additional Points of Note:

  • AFMA has no ownership interest in RVS and the commercial risk for the AFMA RAVA subscription service resides with RVS - it has sourced the capital and is funding the cost of its operation in start-up.
  • Individual AFMA members are not presently involved financially in the commercial venture to establish a service - only as potential subscribers.
  • Subscriber organisations will negotiate directly with RVS and not through AFMA.

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