ICE Benchmark Administration details the ever-evolving nature of LIBOR

North American multinational network of exchanges and clearing houses Intercontinental Exchange (NYSE: ICE) has announced that ICE Benchmark Administration (“IBA”) has today published a Position Paper on the Evolution of ICE LIBOR.

Having taken over the administration of LIBOR in February 2014, IBA has already established rigorous oversight and surveillance mechanisms for LIBOR and the Paper sets out the IBA’s key findings so far on the administration of LIBOR include a summary of recent improvements to the LIBOR administration process as well as proposals for consultation on further enhancements to the LIBOR submission process.

IBA welcomed the publication of the Financial Stability Board’s July 2014 report, “Reforming Major Interest Rate Benchmarks”, which created additional momentum for change and clearly signaled that LIBOR should be underpinned to the greatest extent possible with transaction data.

IBA now invites comments on proposed enhancements to elements of LIBOR, which includes  setting a universal approach, with a more prescriptive calculation methodology using pre-defined parameters that the LIBOR Oversight Committee will keep under review a series of matters including expanding the universe of transactions to reflect changes in recent years in activity in the interbank market, as well as ensuring that transaction-based submissions are used to the extent possible and defining a waterfall methodology for use when there are insufficient transactions to produce a reliable submission.

Further matters include allowing transactions in all representative locations to be used by submitters, and facilitating all wholesale and professional entities to be regarded as eligible counterparty types, recognizing that bank funding has changed over the years.

Widening the window for eligible transactions so that LIBOR is based on as many transactions as possible is a poignant subject as well as creating robust analytical tools to solidify the methodology to produce a matrix of eligible transaction sizes as well as minimum aggregated volume for each currency and tenor, and finally defining the role of qualitative methods: expert judgment should only have a place as a fall-back of last resort.

Finbarr Hutcheson , President of IBA, said: “LIBOR provides the financial markets with a common language, enabling banks around the world to do business with each other and creditors to enter into long term contracts with confidence. Today represents a significant step forward in the LIBOR journey. At IBA, we are seeking to make LIBOR ever more robust by creating a methodology that can keep pace with today’s fast moving markets. We believe that IBA’s approach to evolving benchmarks will benefit LIBOR’s many and diverse stakeholders.”

IBA is seeking feedback on its proposals from all LIBOR stakeholders. Comments should be submitted to IBA by Friday, 19th December, 2014, via this form.

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