Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced today that ICE Benchmark Administration (“IBA”) has published its Roadmap for the evolution of ICE LIBOR (“LIBOR”).
The publication of the LIBOR Roadmap follows extensive and wide-ranging consultation with market participants, stakeholders, central banks and regulators across the globe which commenced at the end of 2014. The Roadmap sets out evolutionary reforms to reduce the risk profile of LIBOR and create the conditions for more banks to participate, including:
- Incorporating transaction data into the LIBOR methodology to the greatest extent possible
- Publishing a single, clear and comprehensive LIBOR definition
- Implementing a construct for ensuring the rate can adapt to changing market conditions with appropriate consideration for the interests of all stakeholders, and
- Conducting a feasibility study on transitioning the calculation of LIBOR to IBA, using transaction data to deliver an even more robust and sustainable rate for the long term
Finbarr Hutcheson, President, ICE Benchmark Administration, said: “LIBOR is the primary benchmark for short term interest rates globally; it underpins more than US$350 trillion in outstanding contracts and much of the world’s financial system. 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. We would like to thank the more than 200 market participants, users and contributor banks who continue to work with us to evolve this vital benchmark which is so central to global funding markets.”
The Roadmap, which will be implemented this year, outlines a set of measures to anchor LIBOR in transactions from a broader set of market participants, reflecting changes in banks’ funding models. To support this, IBA has developed a waterfall of methodologies to ensure that LIBOR can be published every day and in all market circumstances, in line with feedback received from the consultation, as well as the direction set by the Financial Stability Board (“FSB”) and other official sector bodies.
In parallel with the evolution announced today, IBA is conducting a feasibility study on the design and implementation of an appropriate algorithm to calculate LIBOR with banks providing only transaction data to IBA. The algorithm, currently in design phase, would use the real-time transaction data provided by contributor banks following the parameters in the waterfall announced today, further minimising the risk for LIBOR contributor banks. It is anticipated that reducing the risk profile of LIBOR will pave the way for increased participation, augmenting the number of transactions that LIBOR is based on and making the benchmark even more robust.
The full Roadmap document for the Evolution of ICE LIBOR and a factsheet summarising LIBOR’s evolution under IBA administration can be accessed on the ICE website.
LIBOR has global significance; it is referenced by an estimated US$350 trillion of outstanding contracts in maturities ranging from overnight to more than thirty years. LIBOR is produced by IBA on each London business day for five currencies with seven maturities (overnight to 12 months), resulting in 35 published rates each day.
IBA, based in London, was established in 2013 for the purpose of administering benchmarks and is a wholly-owned subsidiary of Intercontinental Exchange, Inc. IBA administers the following three systemically important benchmarks: ICE LIBOR, ICE Swap Rate and the LBMA Gold Price.
Last year, IBA successfully transitioned the LBMA Gold Price and ICE Swap Rate to new, transparent calculation methodologies. Today, the LBMA Gold Price is based on an electronic auction process and ICE Swap Rate is derived from tradable quotes from regulated trading venues.
As the administrator of LIBOR since February 2014, IBA has made significant investments in technology, surveillance and governance to improve the benchmark:
- A dedicated team of IBA analysts examine banks’ trading activity and related evidence every day running millions of pre- and post-publication statistical calculations and analysis on LIBOR submissions, and
- The submission process which had been unchanged for many years is now run on modern, purpose-built technology with a redesigned and automated process, providing real-time validation checks on the submissions to prevent errors before the rate is calculated.
Intercontinental Exchange (NYSE:ICE) operates the leading network of global futures, equity and equity options exchanges. ICE provides world class clearing, data across financial and commodity markets. The New York Stock Exchange is the world leader in capital raising, listings and equities trading.