The move to reform LIBOR, and to transform it into a benchmark based on actual trade data, is set to proceed this year under a plan unveiled Thursday by London, U.K.-based ICE Benchmark Administration (IBA), which now oversees the benchmark.
In the wake of the LIBOR market manipulation scandal, policymakers have proposed numerous reforms designed to prevent similar misconduct in the future, including reforms to the way that benchmarks are calculated and governed. As part of that process, IBA, a subsidiary of the Atlanta-based Intercontinental Exchange Inc. (ICE), took over as the benchmark administrator for LIBOR. And, it has now unveiled its plans for further reform in the year ahead.
The firm says that the planned reforms aim to reduce the risk profile of LIBOR, in the hope that this will enable more banks to participate in setting the benchmark.
Among other things, the IBA says that its plans include incorporating actual transaction data into the LIBOR methodology as much as possible; developing a method to ensure the rate can adapt to changing market conditions; and, conducting a feasibility study on developing an algorithm to calculate LIBOR from real-time transaction data.
“The improvements we have made in the last two years, coupled with this roadmap published today, are designed to secure LIBOR as one of the world’s most trusted, scrutinised and robust financial benchmarks,” says Finbarr Hutcheson, president of IBA, in a statement.