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NYSE operator takes over LIBOR bank rate

July 10, 2013
By DANICA KIRKA , THE ASSOCIATED PRESS

LONDON - The company behind the New York Stock Exchange will take over running and restoring confidence in the scandal-hit London interbank offered rate, or LIBOR, a UK committee has ruled.

The independent panel, set up by the UK government following revelations last year that the rate had been manipulated, chose NYSE Euronext to take over LIBOR from the British Bankers' Association, which had supervised the rate-setting for decades.

The changeover is scheduled to be completed by early 2014, the panel said in a statement. It did not identify any other bidders.

Article Photos

AP PHOTO
Trader Luke Scanlon, right, works on the floor of the New York Stock Exchange Monday. Stocks rose in early trading Monday ahead of the start of second-quarter corporate earnings reports.

"This change will play a vital role in restoring the international credibility of LIBOR," the panel's chair, Baroness Sarah Hogg, said in a statement.

LIBOR underpins trillions of dollars of transactions all over the world. It is an average rate that measures how much banks expect to pay each other for loans and is also used in calculating borrowing costs of hundreds of trillions of dollars in loans and investments such as bonds, auto loans and derivatives.

But the setting of LIBOR was underpinned on trust. The scandal emerged when authorities realized banks - including Royal Bank of Scotland, Barclays and UBS - were submitting false data to gain market advantages.

U.S. and U.K. regulators fined RBS more than $460 million for rate-rigging. Barclays' role led to a $453 million fine and the resignation of chief executive, Bob Diamond. Swiss bank UBS was fined $1.5 billion.

After the scandal erupted, the government moved to restore confidence in LIBOR's integrity, establishing the panel to review the rate and creating criminal penalties for those who violate the rules.

"We want to protect taxpayers and restore faith in financial services," financial secretary to the UK Treasury Greg Clark said in a statement.

The decision to award the tender to a U.S.-based organization will help restore the credibility of Libor, said Mark Taylor, dean of the Warwick Business School and a former managing director of the investment firm, BlackRock.

Taylor said that since much of the criticism of how LIBOR was managed came out of the U.S., having a respected player such as NYSE Euronext take charge will help restore confidence among investors, showing that it is "squeaky clean."

But British officials expect further reforms to come as part of the package - such as the documentation of transactions and submissions that are revealed well after the fact. Creating a paper trial will make it harder to manipulate the rate - despite the temptation to do so, Taylor said.

 
 

 

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