No imminent plans to replace Libor with trade-based index: Administrator

Replacing the quote-based Libor with an index drawing on actual market trades will not happen any time soon, the benchmark’s new administrator said yesterday.

The London Interbank Offered Rate (Libor) is compiled from quotes by banks of the rate they believe they would pay to borrow from another bank.

Barclays, Royal Bank of Scotland, and others have been fined for manipulating Libor, sparking calls from the US, where the rate is a reference in home loans, for an index based on actual market transactions.

Britain passed a law requiring Libor to have a new administrator, stripping the British Bankers’ Association trade body of that role.

Transatlantic exchanges group NYSE Euronext, acquired by ICE last week, won the tender to administer Libor. It said on Tuesday the transition from the BBA to ICE will be completed early next year.

The focus is on a smooth transition to the administrator and restoring confidence in the index, rather than wholesale change in the its composition, said Finbarr Hutcheson, who heads the new administrator.

“We will be very transparent on how Libor is set,” he told a Financial Conduct Authority conference.

Britain is facing pressure from the US to replace Libor with a market-based index, which is considered less vulnerable to rigging.

Andrew Hauser, head of sterling markets at the Bank of England, said the “palette of benchmarks” needed to be expanded, even if the alternatives will be limited.

Global regulators such as the Financial Stability Board are studying how transition to market-based alternatives could take place, with the outcome due next year.

“Right now our focus is on a smooth transition,” Mr Hutcheson said.

John Grout of the Association of Corporate Treasurers said calls for a market-based index came mainly from politicians. However, such an index could also caused problems when there are no transactions, he said.