News – Malaysia’s Klibor unlikely to be manipulated

Unlikely? Read this snippet :

As the central bank is also able to inject and extract liquidity into and from the market using its available tools, the risk of distortion to the rate is lower. Libor, on the other hand, is determined in London based on the quotes provided by 18 large banks, the outliers (on the higher and lower ends) are excluded and the Libor is generally determined by averaging the rests.

Then this :

Bloomberg in a recent report cited the association’s president Datuk Lee Kok Kwan as saying that one of the proposals would be that the 12 banks, whose estimates were used to compile the Klibor, would be required to lend funds to other banks at that day’s rate during a five-minute period from 11am every day.

The news agency also said the new rules would stipulate a spread between Klibor and the rate that the 12 participating banks must pay for deposits during that five-minute window.

Klibor is determined by a daily poll carried out on behalf of the association that asks 12 banks to estimate how much it would cost to borrow from each other. The highest and lowest submissions are excluded, and an average of the remaining 10 entries are calculated to set the rate at 11am local time.

Is it not the same? The only different is the number of participants (Libor is 18 banks and Kilbor is 12 local banks). If it is a free market, then let the whole market participant determine the right Kilbor rate than let on a hand full of banks determine the rates. It is not ‘manipulation’?