NYSE Euronext’s victory in its bid to become the administrator of Libor should restore faith in the benchmark on both sides of the Atlantic as well as offering significant growth potential, says William Mitting.
On Tuesday it was confirmed that NYSE Euronext had won the
contract to administer the series of Libor rates beginning a
new era for the 30 year old benchmark. The transition is
expected to be completed in 2014 and will lead to the creation
of a new entity, NYSE Euronext Rate Administration (NERA),
which will oversee and validate the operations of Libor.
Much of the uninformed press in the UK has howled in protest
over the apparent move of control of the benchmark to a US
company. However, not only will NERA be based in London and be
a UK registered company, the ultimate US ownership of the
administering body should ease US politicians’ and
regulators’ hostile rhetoric against Libor.
The Euronext plan appears to allieviate many of the
challenges associated with the reform of Libor. NERA is to
retain the current system of quoting expected borrowing rates
but to anchor the submissions through market data based on
actual transactions. There are a number of transactions in
areas such as the FRA market and Certificates of Deposit that
are related to and indicative of Libor submissions. NERA
intends to monitor the relationship between where a bank is
trading in those markets and the implied Libor rate.
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