* Australia's BBSW rates to be set directly from tradingvenues
* Citi, HSBC join JP Morgan, UBS in exodus from BBSW panel
* BBSW, based on actual trades, seen less prone tomanipulation than Libor
* New Zealand loses BKBM rate contributors, reviewingprocess
By Lincoln Feast
SYDNEY, March 28 (Reuters) - Australia is scrapping thepanel that sets its interbank lending rates after an exodus ofbanks from the panel, the first major market to dismantle thetarnished structure in the wake of the Libor rate-riggingscandal.
Australia instead plans to base its reference rates onactual market transactions, in line with recommendations earlierthis month by a group of global central bankers, and could setthe pace for moves in other markets.
Regulators are seeking to reform rate-setting practicesafter Barclays Plc, UBS AG and Royal Bank ofScotland Group Plc were hit with fines totallingbillions of dollars for rigging the London Interbank OfferedRate, known as Libor.
The Australian Financial Markets Association (AFMA), whichadministers Australia's bank bill swap (BBSW) reference rate,said it planned to bypass the panel and derive the ratesdirectly from brokers and electronic markets.
"An advantage of this enhancement is that it will remove theneed for a BBSW Panel, which will eliminate the associatedcompliance and ancillary costs which otherwise exist forpanellist banks," the association said in a statement issuedlate on Wednesday.
"This change is subject to technical requirements beingsatisfied, but it is hoped that this solution will be achievablewithin a period of months."
Banks around the world are reviewing their involvement ininterest rate-setting panels in the aftermath of the Liborscandal, which was sparked by findings on manipulation of ratesused to price home loans, credit cards and other financialproducts worth trillions of dollars.
While British regulators have stopped rate fixings on someless-used currencies and tenors, this would mark the first timethe panel for a market's main interbank lending benchmark hasbeen disbanded.
MORE TRANSPARENT?
AFMA said HSBC and Citibank were pulling outof the BBSW panel, joining the departures of JP Morgan Chase &Co and UBS announced earlier this year.
JP Morgan, Citi and HSBC are also withdrawing from the panelon the New Zealand equivalent, the head of the NewZealand Financial Markets Association, Paul Atmore, said.
Atmore told Reuters that the association was reviewing itsrate setting process, which uses bank contributions based ontrades made in a daily two-minute trading window and would lookat pricing rates directly from the market.
Australia's BBSW rates had been viewed as a moretransparent model than the widely used Libor for settinginterbank rates.
While banks submit self-determined estimates of theirborrowing and lending costs to calculate Libor, the BBSW rates,with tenors ranging from one to six months, are based on wherethe paper is actually trading in the market.
Submissions to the BBSW process report the prevailing pricesfor a single type of clearly defined and homogeneously tradedpaper from Australia's four "prime banks" - Australia and NewZealand Banking Group, Westpac Banking Corp,National Australia Bank and Commonwealth Bank ofAustralia.
The Bank for International Settlements this month called forgreater use of actual transaction data to produce a range ofreference interest rates for different purposes.
While scrapping the Australia panel will link referencerates more directly to actual market rates, some marketparticipants voiced concern that they could still be manipulatedby banks entering the cash market with big orders before thefix.
UBS's withdrawal from the BBSW panel follows the publicationof a U.S. Commodity Futures Trading Commission report into itsmanipulation of Libor and the Japanese yen equivalent.
The CFTC findings also noted evidence of attemptedmanipulation by UBS traders in the BBSW, among other rates.
UBS has declined to comment on its findings.