Scandal-plagued Libor moves to NYSE as part of reforms

The scandal-plagued Libor interbank rate formally broke with its past yesterday as NYSE Euronext, the transatlantic exchanges operator, won the right to take over and reform the global benchmark, which serves as the reference point for more than $350tn in contracts worldwide.

The new administrators will be charged with restoring confidence in the interbank lending rate amid a global probe that has seen three banks pay nearly $2.6bn in fines for rigging the rate in order to make money on derivatives.

The scandal has drawn nearly a dozen other banks and interdealer brokers and has tarnished the reputation of the City of London.

An independent committee, set up by the UK government, selected the New York-based group over two UK-based rivals. NYSE Euronext will take over the London Interbank Offered Rate from the British Bankers’ Association by early 2014.

"This change will play a vital role in restoring the international credibility of Libor," said Baroness Hogg, a leading City and British establishment figure, who chaired the committee.

NYSE Euronext will pay just $1, in part because the UK government was adamant that the BBA should not profit from the scandal. The new administrator will take over the BBA’s existing contracts with rate users.

UK officials have estimated that it will cost £1.6m to set up a properly regulated rate-setting process plus annual running costs of £1m a year.

Links to real transactions
The Libor rates will initially still be calculated by surveying a panel of banks about the rates at which they think they can borrow. But the new administrator is expected to consult regulators and market participants on ways to link Libor more closely to real transactions without upsetting the existing contracts.

"We expect NYSE Euronext to develop further the oversight and governance of Libor," said Martin Wheatley, head of the Financial Conduct Authority, which was given power to regulate Libor in April.

He has previously suggested that the administrator might choose to run two sets of parallel rates, one based on estimates for the back book and one linked to transactions for new contracts.

Libor has been run by the BBA since the 1980s. But the admission in June 2012 by Barclays that its traders had sought to influence the rates, laid bare the conflict of having banks run and set the benchmarks on which their traders relied.

– ( Copyright The Financial Times Limited 2013)