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LIBOR interest rate controlled by NYSE Euronext starts early 2014, but will it generate confidence

NYSE Euronext has won the contract for setting the London Inter-bank Offered Rate (Libor), a government-backed committee announced.

The new rate-setting body, to be known as NYSE Euronext Rate Administration, will be based in the UK and regulated by the Financial Conduct Authority (FCA).

Current process
At the moment, it is calculated by Thomson Reuters for the British Bankers' Association (BBA), based on estimates received from 16 major international banks in London of how much they must pay in order to borrow cash from other banks.

New process
Under the new agreement, the rate would be calculated by estimates received from those same banks, as well as by using transaction data monitored by NYSE Euronext. It is hoped that by augmenting the self-reporting with transaction data it will help further prevent the rate from falling prey to manipulation.

An oversight committee will also be created to set up a code of conduct on how banks can operate.

Thomson Reuters will continue to make the calculations until the new arrangement is set up.


But why will this generate confidence in LIBOR? It doesn't seem really independent enough, NYSE Euronext is not known as a benchmark provider, and the last oversight committee failed miserably.


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% Rate Hedging & Risk Management

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