New Revamped LIBOR: Will Thomson Reuters Keep its Role as Administrator?
Posted: 1 October 2012 | Author: Chris Kentouris | Source: International Security Services
A proposed overhaul of the system for developing the popular LIBOR benchmark has jeopardized Thomson Reuters' longstanding role as the administrative agent.
At the very least, Thomson Reuters will now have to rebid for the job of collecting information from banks and using it to calculate the London Interbank Borrowing Rate, or LIBOR, as part of an overhaul of LIBOR just proposed by the UK's Financial Services Authority. Among the expected contenders to its role are archrival Bloomberg; the FTSE and Markit.
Last Friday, Martin Wheatley, managing director of the securities watchdog, recommended that the British Bankers Association (BBA) should no longer oversee the process for calculating LIBOR. Instead, Wheatley recommended a competitive bidding process to find a new organization which would be responsible for the "surveillance and scrutiny" of submissions as part of its governance and oversight of LIBOR. The BBA had outsourced the actual work to Thomson Reuters, which did the math daily based on estimates of borrowing rates submitted by global banks.
The UK will need legislative changes to migrate to the new benchmark and such changes are expected to be inserted in a new financial services bill, now being considered by Parliament. The FSA's decision to overhaul LIBOR reflects in large part concerns that replacing the popular benchmark could be operationally costly and difficult for financial firms, which would need to change a host of systems.
So far, only Bloomberg has publicly confirmed it wants to come up with its own LIBOR-like index it calls the Bloomberg Interbank Offered Rate. Thomson Reuters is still reviewing whether it wants to put its hat in the ring, while FTSE and Markit won't comment on the matter. The favored winner in London financial circles is the London Stock Exchange-owned FTSE, which offers a range of indices, including benchmarks based on interest rate swap and fixed-income data. Bank-owned Markit has produced a tradable index for credit default swaps and provides loan pricing data.
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