NYSE Euronext to control Libor interest rate

The owner of the New York Stock Exchange will take control of a key scandal-hit bank interest rate. NYSE Euronext has won the contract for setting the London Inter-bank Offered Rate (Libor), a government-backed committee stated. Libor is used to set trillions of dollars of financial contracts.

The move follows the revelation that banks had been manipulating the rate. Barclays, UBS and RBS have been fined for their roles in the scandal. They were found to have colluded in fixing the Libor setting to boost the profits of traders in the run-up to the financial crisis.

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). "This change will play a vital role in restoring the international credibility of Libor," said chair of the committee tasked with selecting a new administrator for the interest rate, Baroness Hogg.

"Today marks a significant step in implementing the recommendations in my review of Libor," said chief executive of the FCA and author of a report for the government on how the interest rate should be reformed, Martin Wheatley.

"The selection of a new administrator, who will need to be authorised, and then subject to ongoing scrutiny by the FCA, is an important step in enhancing the integrity of Libor."

Libor is set in London and is meant to reflect the average rate that banks pay to lend to each other.

It is used to benchmark everything from car loans and mortgages to complex financial transactions around the world.

At present, 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 to borrow cash from other banks.

Under the new agreement, the rate would be calculated by estimates received from those same banks and by using transaction data monitored by NYSE Euronext. It is hoped that by augmenting 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.

Both of these factors will be in place by the time NYSE Euronext takes over the contract, in early 2014.

BBC