Financial Benchmark Administrator
Also written FBA · Financial Benchmark Administrator (FBA)
The regulatory category for a body that publishes a benchmark rate or index used in OTC interest rate derivatives — a floating rate in an IRD must come from an FBA or be a rate approved by FIMMDA.
In plain language
When two parties agree to swap a fixed rate for a floating one, that floating rate has to come from somewhere everyone trusts — not from either counterparty's own books. The workbook's rule names exactly whose numbers qualify: an FBA, or Financial Benchmark Administrator.
How it works
The rule, from RBI's Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019: "Any floating interest rate or price or index used in IRDs in the OTC market shall be a benchmark published by an FBA (Financial Benchmark Administrator) or approved by The Fixed Income Money Market and Derivatives Association of India (FIMMDA) for this purpose."
So there are two acceptable routes for a floating rate used in an OTC IRD contract: it is published by a body formally recognised as an FBA, or it is a rate that FIMMDA has approved for the purpose. Where FIMMDA itself approves a rate, the Directions require FIMMDA to ensure that rate is determined transparently, objectively and in arm's length transactions.
The Directions also give FIMMDA an additional specified role alongside this: for OTC Interest Rate Derivatives, settlement basis and other market conventions must be specified by FIMMDA, in consultation with market participants. Exchanges deciding underlying securities for GOI bond derivatives must likewise do so in consultation with FIMMDA.
Financial Benchmarks India Pvt. Ltd. (FBIL) is the leading example of a body performing this function in India's interest rate market — it administers benchmarks such as the Overnight MIBOR and Treasury Bill rates, and introduced the Secured Overnight Rupee Rate (SORR). The workbook treats FBA as the regulatory category, and FBIL as the institution most prominently occupying it for interest rate benchmarks; see FBIL for what that body itself does.
A worked example
A bank and a corporate borrower enter an OTC interest rate swap of Rs 150 crore notional, where the corporate pays a fixed rate and the bank pays a floating rate referenced to Overnight MIBOR. Because MIBOR is a benchmark published by an entity performing the FBA function for India's money market, the floating leg of this swap satisfies the Directions' requirement without any further approval step.
Contrast this with a hypothetical floating reference invented privately between the two counterparties — say, an average of two dealers' own quoted rates, with no independent publication or FIMMDA approval. That reference would not qualify as a floating rate for an OTC IRD contract under the Directions, because it comes from neither an FBA nor a FIMMDA-approved source.
Why NISM asks about it
Chapter 8 (Regulatory Environment for Exchange Traded IRD), section 8.6 and 8.6.1, states the FBA-or-FIMMDA-approved rule for floating rates in OTC IRDs, immediately before describing FBIL's specific role in the interest rate market. Expect a question on the two acceptable sources for a floating IRD rate (a published FBA benchmark, or a FIMMDA-approved rate) and on FIMMDA's separate role in setting OTC settlement conventions.
Common exam traps
- There are two routes, not one: an FBA-published benchmark, or a FIMMDA-approved rate — either satisfies the rule.
- FBA is the regulatory category; FBIL is one specific institution performing that role for money market and interest rate benchmarks — do not treat the two names as identical without qualification.
- FIMMDA's role here is twofold: it can itself approve a floating rate, and separately, it specifies settlement basis and market conventions for OTC IRD transactions.
- A FIMMDA-approved rate must be determined transparently, objectively and at arm's length — this is a stated condition, not a formality.
Where this is taught
Free preparation for NISM Series IVRelated terms
- Electronic Trading PlatformA screen-based venue for OTC rupee interest rate derivative transactions, regulated as part of RBI's 2019 Rupee Interest Rate Derivatives Directions, sitting alongside — but outside — recognised stock exchanges.
- FBILFinancial Benchmarks India Pvt. Ltd., one of the agencies a Category III AIF uses to obtain the security-level prices it needs to mark its money market and debt holdings to market.
- Overnight MIBORThe benchmark overnight rupee interbank rate administered by FBIL, and the underlying of India's money market interest rate futures contract, which is quoted as a rate rather than a price.
- Secured Overnight Rupee RateA trade-based overnight benchmark, derived from actual repo transactions and introduced by FBIL to replace MIBOR, for better transparency and alignment with global benchmark reform.
- All India Financial InstitutionsA named group of four RBI-regulated development institutions — Exim Bank, NABARD, NHB and SIDBI — treated as non-retail users for IRD participation and given their own, wider window for issuing Certificates of Deposit.