NYSE Euronext to administer Libor

The British Bankers' Association (BBA) will hand over administration of the London interbank offered rate (Libor) to NYSE Euronext, the transatlantic exchanges operator, in a bid to reform the scandal-hit benchmark.

Libor has been used to decide the average rate that banks pay to lend to each other, taking a snapshot of interest rates across different time periods. It helped to set the price on loans, from mortgages to student loans to more complex derivatives and has been used to manage more than $350 trillion in securities.

The rate, however, has been mismanaged and rigged by a group of major banks that led to the benchmark rate losing its authority.

At least 10 major banks have been investigated in connection with the scandal, and UBS and Royal Bank of Scotland have already paid more than $2 billion in penalties and admitted to rate-rigging. Likewise, Barclays BCS has paid $450 million and admitted its bankers manipulated Libor during the financial crisis to seem more stable.

The BBA board today voted unanimously to approve the transfer of the administration of Libor to NYSE Euronext Rates Administration Limited, the bidder recommended by the Hogg Tendering Advisory Committee.

NYSE Euronext has beaten London-based rivals to take over and reform the scandal-plagued Libor rate. The BBA will hand over administration of the benchmark after approval from UK's Financial Conduct Authority (FCA).

BBA said it would engage constructively with the new administrator over the coming months to ensure a smooth transition ahead of the expected completion in early 2014.

The appointment of this new administrator is one of the key recommendations of the Wheatley Review, which was set up following the revelations of attempts to manipulate Libor. 

Commenting on the announcement, BBA chief executive Anthony Browne said: ''Restoring confidence in Libor has been an absolute priority for the BBA since I took over as chief executive last year. We have been working hard with regulatory authorities and the government to put in place much-needed reforms to the system.

''The new administrator will take over a benchmark with better regulatory oversight and improved governance.

''We are pleased that NYSE Euronext Rate Administration Limited have been successful in their bid and look forward to working with them in the transition period before they take over full administration of the benchmark.

The Wheatley Review, published in September 2012, has recommended that the BBA should transfer responsibility for Libor to a new administrator, who will be responsible for compiling and distributing the rate, as well as providing credible internal governance and oversight.

The Libor has also been streamlined to only five currencies of seven maturities from 10 currencies of 15 maturities earlier.

BBA has successfully terminated the Danish, Swedish, Canadian, Australian and New Zealand Libor rates, without disruption to financial markets.

In addition, from 31 July the publication of ''same day'' Euro Libor rates for 1 week and 1 month will cease. These 2 rates were supplemental to the ''spot'' Eur Libor rates for all seven Libor tenors, which will continue as usual.

BBA has embargoed the publication of individual bank's submissions to Libor for 3 months beginning 1 July as per the Wheatley Review. Individual bank submissions will continue to be available in real-time to the Libor benchmark administrators for the purposes of calculating the rate and for monitoring and surveillance. The information is also available to the FCA for the purpose of supervision.

BBA Libor Ltd as the interim benchmark administrator for Libor, has also established the Interim Libor Oversight Committee (ILOC) as required by the FCA regulations and recommended by the Wheatley Review.

''This change will play a vital role in restoring the international credibility of Libor,'' says Baroness Hogg, who led the UK committee for the change.

NYSE Euronext Rate Administration will operate from Britain and will be regulated by the Financial Conduct Authority.

The NYSE Euronext, which will soon be acquired by IntercontinentalExchange, already runs Life, Europe's second-largest derivatives exchange, at which traders buy and sell securities based on Libor.