Article 8.4 Regulators warn on Libor reform
By Daniel Schafer
Financial Times July 22, 2014
A powerful umbrella body for global regulators has criticised the administrators of Libor and two other interbank lending rates for failing to show that they have improved the reliability and accuracy of such benchmarks.
The administrators of Britain's Libor and its European and Japanese equivalents Euribor and Tibor have not provided the data and analysis to demonstrate whether they are anchored in real transactions, the International Organisation of Securities Commissions said in a review of its benchmark principles.
Iosco last year introduced those principles after the scandal over widespread manipulation of Libor sparked an intense debate about radical reform of the way such benchmarks are compiled.
Regulators are keen to ensure that benchmarks are rooted in real market transactions rather than just bank submissions which, since the Libor scandal, are seen as susceptible to manipulation.
‘None of the administrators has completed an analysis of methodologies to provide a basis for deciding whether the submissions are anchored in that market,' Iosco said.
The group gave administrators until the end of the year to set out concrete steps to address this issue.
Iosco's report comes shortly after Intercontinental Exchange, which took over the administration of Libor this year, began asking banks for internal transaction data and also started testing a new system to collect and validate rates the banks submit.
Major reference interest rates such as Libor, Euribor and Tibor should be ‘to the greatest extent possible' based on actual trade data, the Financial Stability Board said in an additional report on Tuesday.
The FSB also called on market participants to investigate the feasibility of developing alternative, fully transaction-data based reference rates.
FT
Source: Schafer, D. (2014) Regulators warn on Libor reform, Financial Times, 22 July.
Now that Libor is no longer calculated for the Australian dollar (nor NZ or Canadian dollars or Danish and Swedish krona) the Australians have decided to obtain interbank rates from market transactions - see Article 8.5. Bank bills are discussed in Chapter 11.