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TORF   Tokyo Term Risk Free Rate

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Summary of Transition from LIBOR

LIBOR is the abbreviation for the London Interbank Offered Rate and is widely used as the benchmark interest rate for loans and bonds. Major global banks calculate the interest rate to borrow funds in the London short-term financial market and report to an organization. The average interest rate is then calculated and published in five currencies including the U.S. dollar, the Euro, the British pound, the Japanese yen, and the Swiss franc.
In 2012, several banks were found manipulating the rate by fraudulently reporting the interest rate in their own bank’s favor, thereby causing its reliability to erode significantly. In July 2017, the British Financial Conduct Authority (FCA) announced that the publishing of LIBOR will not be guaranteed after the end of 2021, in effect suggesting the possibility that it will be discontinued at the end of 2021.
If the publishing of LIBOR is suspended, calculations of payment amounts for loan interest and derivative transactions may not be able to take place and could cause confusion in the financial markets. Consequently, financial institutions and companies must halt all new transactions that refer to LIBOR while at the same time switching existing transactions to an alternative benchmark.

What is TORF

Summary

In Japan, there are several candidates for alternative benchmarks to replace LIBOR but the benchmark that was most supported by public consultations conducted on November 2019 by the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks, for which the Bank of Japan serves as the Secretariat, was the Tokyo Term Risk Free Rate (TORF) calculated and published by QUICK. TORF is a benchmark based on the uncollateralized overnight call rate which involves almost no credit risk of financial institutions. It calculates the interest rate from derivative transaction data for a period of one month or three months. Similar to existing interest rate benchmarks such as LIBOR, the rate is fixed as of the start of the interest rate calculation period, making the system and administrative burden associated with the switch, relatively small.
In February 2020, QUICK was designated as a Calculating and Publishing Entity of prototype rates. Rate publication is divided into two phases: the publication of prototype rates used by market participants and interest rate benchmark users for developing their administrative frameworks etc. (Phase 1); and the publication of production rates that will be used in actual transactions (Phase 2). Prototype rates had been published on a weekly basis since May 2020, and are being published daily beginning in October.

Features

  1. Term interest rate based on
    risk free rate of Japanese yen
  2. ”Fixing in advance” method where applied interest rate is fixed at the beginning of the period
  3. Interest rate reference period and calculation period are the same
▼
Burden of switching from LIBOR is small
Name
Official Name Tokyo Term Risk Free Rate
Abbreviation TORF
Data
Tenor 1M, 3M, 6M
Calculation Time 15:00 JST on a Tokyo business day
Publication Time around 17:00 JST on the same day

Calculation methodology

Data Source

  • Spot-starting outright OIS transaction in Japanese yen
  • Executed transactions on a Tokyo business day
  • Executed transactions ：execution rates, notional amounts, execution date and time
  • Indicative Quote Data ：best bids and offers and other data, date and time of submission

Calculation Methodology

Waterfall methodology is adopted where executed transactions data is used first, but if there is no applicable data, the next priority data is used. For details of each priority of data, please refer the PDF document (downloadable from the button below).
Calculation methodology Calculation methodology
Click here for the detailed documents

Schedule

2020
PHASE
1
February 26, 2020 Selected as calculation and publishing entity for term risk free rate (prototype rate)
May 26, 2020 Began weekly calculation of prototype rates
July 28, 2020 Finalized name to Tokyo Term Risk Free Rate
October 9, 2020 Began daily calculation of prototype rates
2021
January 18,2021 Establish TORF administration company “QUICK Benchmarks”
Mid 2021 Begin calculation of production rates (scheduled)
PHASE
1
End 2021 LIBOR publication suspended (scheduled)
2020 February 26, 2020 Selected as calculation and publishing entity for term risk free rate (prototype rate)
PHASE
1
May 26, 2020 Began weekly calculation of prototype rates
July 28, 2020 Finalized name to Tokyo Term Risk Free Rate
October 9, 2020 Began daily calculation of prototype rates
2021 January 18, 2021 Establish TORF administration company “QUICK Benchmarks”
Mid 2021 Begin calculation of production rates (scheduled)
PHASE
2
End 2021 LIBOR publication suspended (scheduled)

How to access TORF

Access via QUICK Service
(prototype rate)

Applicable products QUICK Workstation, Qr1, QUICK Asset Design PRO,
QUICK APIs, QUICK Feed, etc.
For Inquiries
Quote Code： MJPY#TRFR.n/QIK *n=1,3,6
Screen Code： QTRF001
(service through QUICK Workstation, Qr1, QUICK Asset Design PRO)
QUICK Money World https://moneyworld.jp/page/qtrf001.html
*Quote code and screen code for production rate may differ from the above.

Other Publication Sources
(prototype rate)

Morning edition of the Nikkei Newspaper, Nikkei NEEDS service, Refinitiv Eikon series, Jiji Press Ltd.’s finance and securities information service

Information regarding use of
TORF production rates

To utilize TORF production rates, a license agreement with QUICK is required. Please contact us here for details.
Click here for the detailed documents