NYSE Euronext to run scandal-hit Libor
NYSE Euronext will now set the LIBOR for London banks, a reactionary measure to the LIBOR scandal in which banks were manipulating the rate with which they could lend each other funds.(Photo: Kirsty Wigglesworth AP)
The New York Stock Exchange's parent firm Tuesday won a competition to take over administration of a scandal-clouded financial benchmark used to set rates on trillions of dollars of mortgages, loans and credit card rates.
NYSE Euronext announced that a new subsidiary will improve the reliability of Libor — the London Interbank Offered Rate — which is the focus of ongoing investigations of alleged rate-rigging by global banks that have fined billions of dollars.
Finbarr Hutcheson, CEO of a NYSE subsidiary based in London, said in a statement the business group looked forward to "continuing the process of restoring credibility, trust and integrity to Libor as a key global benchmark."
The winning subsidiary, known as NYSE Euronext Rate Administration Ltd., is scheduled to complete the transfer in early 2014. The company said it "will be able to leverage NYSE Euronext's trusted brand, long regulatory experience and market-leading technical ability to return confidence to the administration of Libor."
Libor has long been administered by the British Bankers' Association. The benchmark, set each morning, represents the rate global banks operating in London estimate they would expect to pay for short term loans from each other in various world currencies.
The Libor-setting process has been widely criticized because it is based on estimates submitted by small groups of bankers, rather than on a known and transparent financial standard.
So far, Royal Bank of Scotland, London-based Barclays and Swiss giant UBS have admitted collusion to manipulate the benchmark and have collectively been fined more than $2.5 billion.
Thomas Hayes[1], a former Citibank and UBS trader, was accused on criminal charges of conspiracy to defraud by British authorities last month over what investigators alleged was his central role in Libor rate-rigging.
LIBOR: What is it exactly and why does it matter?[2]
The Libor administration change follows European regulators' recent approval of the sale of NYSE Euronext to Atlanta-based IntercontinentalExchange, an operator of derivatives exchanges. James Angel, a finance professor at Georgetown University's McDonough School of Business, said the shift to NYSE Euronext signals diversification amid diminishing trading volumes and revenues in traditional exchange functions.
"This is a fantastic example of corporate evolution — how the NYSE is growing into a company," said Angel, who added the announcement "shows how the NYSE is moving beyond equity to being a full-fledged financial services organization."
But the transfer represents just the first step, he said. "Step two will be coming up with a measure that cannot be manipulated like the current one was," said Angel.