The group that administers the London interbank offered rate, seeking to bolster confidence in the benchmark after a manipulation scandal, is proposing to standardize how the banks calculate their submissions.
Global regulators said in July the rate, the key interest benchmark for more than $300 trillion of securities worldwide, shouldn't rely on estimates that allowed traders at some of the world's biggest banks to manipulate Libor. At least nine firms, including Barclays Plc and Royal Bank of Scotland Group Plc, have been fined more than $6 billion after traders colluded to rig the rate and related benchmarks for profit.
Banks are still using a range of different methods to calculate their submissions, ICE Benchmark Administration, the unit of Intercontinental Exchange Inc. that took responsibility for the rate in February, said in a statement today.
“It is in the interests of users of Libor and benchmark submitters alike that a more unified transaction-based methodology should be adopted,” ICE Benchmark Administration said. “We therefore propose a more prescriptive calculation methodology with pre-defined parameters that our oversight committee will keep under review.”
The group proposed expanding the universe of transactions on which banks can base their submissions to include their wholesale funding deposits, commercial paper and primary issuance certificates of deposit. Other data from repurchase agreements and the overnight indexed swap rate would only be included when a lack of data would otherwise force firms to rely on judgment.
Libor is calculated by a daily poll that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.
The panel said it's also weighing alternatives to what it called that “topping and tailing” exercise and whether it should “smooth” the rate published rate to reduce its volatility. Firms have until Dec. 19 to submit their responses.
Bloomberg News
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