IntercontinentalExchange Group Inc., the owner of Europe’s second-largest futures market, named Andre Villeneuve chairman of its benchmark-administration unit as it secured approval to take control of the London interbank offered rate next month.
ICE (ICE:US), which owns the Liffe derivatives market, won’t make any immediate changes to Libor’s calculation, the exchange said in an e-mailed statement today. ICE Benchmark Administration will be a separate unit with an independent board led by the former Reuters Group Plc executive director.
“It is vital that market participants have full confidence in the integrity of the rate,” ICE Benchmark Administration President Finbarr Hutcheson said in the statement. “With the support of market participants, regulators and stakeholders, and through enhanced checks and controls, IBA will work collaboratively to ensure full confidence in Libor.”
The British Bankers’ Association, whose members are among the world’s largest lenders including those who contribute to Libor, was stripped of responsibility for the benchmark in April after regulators found banks had tried to manipulate it to profit from bets on derivatives. London-based Barclays Plc (BARC) was the first to be fined in the affair in June 2012 by U.S. and U.K. authorities. The European Union fined six lenders a record 1.7 billion euros ($2.3 billion) in December, bringing the total global fines to about $6 billion. Ten people have also been charged in U.S. and U.K. criminal investigations.
New surveillance methodology will “adjust to changing market conditions,” ICE said. “It will employ sophisticated analytical tools to operate the benchmark price-setting process with transparency. These measures will help IBA identify errors or potential misconduct, such as collusion.”
Liffe offers Libor-based short sterling futures and Euribor, dominating the market for trading of short-term interest-rate products. Owning that business means it’s in Liffe’s interest that investors have confidence in Libor, Hutcheson, then chief executive officer of Liffe, said in July.
ICE, the energy and commodity futures bourse in Atlanta, acquired NYSE Euronext last year, which enabled it to expand into interest-rate futures. That market in the U.S. is dominated by CME Group Inc. (CME:US), the world’s largest derivatives exchange. CME offers the Libor-based Eurodollar contract while NYSE Liffe US offers a rival Eurodollar contract.
Libor was first published by the BBA in 1986, the year the British “Big Bang” program of deregulation fueled a boom in London’s bond and syndicated-loan markets. Originally intended to be a simple benchmark that borrowers and lenders could use to price loans, the rate grew in importance as it was adopted as the basis for setting interest rates from mortgages and student loans to derivatives.
The U.K. government started the search for a replacement body to set Libor in February last year. The BBA voted to relinquish operation of the benchmark after criticism that it failed to act on concerns about the rate-setting process.
The Financial Conduct Authority, which approved ICE taking over Libor as of Feb. 1, has administered the rate since April.
ICE also named Joanna Perkins as chairwoman of IBA’s Oversight Committee. Perkins, a lawyer, will continue serving as chief executive of the Financial Markets Law Committee, according to the statement.
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