New Libor administrator signals caution over compilation changes

Reuters

By Huw Jones

LONDON, Nov 19 (Reuters) - Replacing the quote-based Liborwith an index drawing on actual market trades won't happenanytime soon, the benchmark's new administrator said on Tuesday.

The London Interbank Offered Rate is compiled from quotes bybanks of the rate they believe they would pay to borrow fromanother bank.

Barclays, Royal Bank of Scotland and othershave been fined for manipulating Libor, sparking calls from theUnited States, where the rate is a reference in home loans, fora new index based on actual market transactions.

Britain passed a law requiring Libor to have a newadministrator, stripping the British Bankers' Association tradebody of that role.

Transatlantic exchanges group NYSE Euronext, which wasacquired by ICE last week, won the tender to administerLibor. It said on Tuesday the transition from the BBA to ICEwill be completed early next year.

The focus now is on a smooth transition to the newadministrator and restoring confidence in the index rather thanwholesale change in the benchmark's composition, FinbarrHutcheson, who heads the new administrator, said.

"We will be very transparent on how Libor is set," Hutchesontold a Financial Conduct Authority conference.

Britain is facing pressure from the United States to replaceLibor with a market-based index, which is considered lessvulnerable to rigging.

Andrew Hauser, head of sterling markets at the Bank ofEngland, said the "palette of benchmarks" needed to be expanded,even if the number of alternatives will be limited.

Referring to calls for a market-based index, Hutcheson said,"The reality is that that doesn't exist at the moment. There isno simple answer."

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

"Right now our focus is on a smooth transition," Hutchesonsaid.

John Grout of the Association of Corporate Treasurers saidthe call for a market-based index came mainly from politicians.But such an index could also caused problems when there are notransactions, he said.

"We have no more faith in transaction-based benchmarks thanin good-faith-based indices," Grout told the conference, addingthat strict new controls on Libor were restoring confidence inthe index.

Hutcheson said once the infrastructure is in place foradministering Libor, ICE "will be looking to leverage that asmuch as we can in other oppportunities for benchmarkadministration".

A new European Union law now being approved is expected torequire independent administrators for a range of majorbenchmarks used across Europe.

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