Picture: REUTERS
Picture: REUTERS

BRITAIN will hand over administration of the London interbank offered rate (Libor) to the operator of the New York Stock Exchange as regulators try to revive confidence in the scandal-hit benchmark.

NYSE Euronext will replace the British Bankers’ Association as Libor’s administrator early next year, the London-based lobby group that started the benchmark more than two decades ago said in a statement on Tuesday.

The UK’s Financial Conduct Authority began regulating Libor, the benchmark for more than $300-trillion of securities, in April as part of the overhaul.

The decision is not expected to have any fallout for the JSE, which uses the Johannesburg interbank agreed Rate (Jibar) system. Jibar works in a similar way to Libor and is used by local banks as an interest guide to settle overnight lending.

Jibar did not show the same volatility and wide divergence of trades as Libor did after 2008. However, a Reserve Bank report at end of last year recommended some changes in the setting of Jibar to make it more transparent.

The New York-based NYSE Euronext already operates Liffe, Europe’s second-largest derivatives exchange, which offers derivatives based on Libor. A UK government review recommended last year that the British Bankers’ Association should be stripped of responsibility for Libor after regulators found banks had tried to manipulate it to profit from bets on derivatives.

"The fact they are handing this to a derivatives exchange is a surprise," Peter Lenardos, a financials and exchange analyst at RBC Capital Markets in London, said on Tuesday. "It just doesn’t seem independent enough.

"They are taking the setting of Libor from the banks and giving it to an exchange not known as a benchmark provider."

Barclays, UBS and Royal Bank of Scotland Group have been fined more than $2.5bn by US and UK regulators for rate-rigging and more than a dozen more firms are being probed worldwide.

The UK government formally started the search for a replacement body to set Libor in February after the British Bankers’ Association formally voted to relinquish operation of the benchmark. A seven-member panel including Sarah Hogg, outgoing chairman of the Financial Reporting Council, Financial Conduct Authority CEO Martin Wheatley and the Bank of England’s Paul Fisher, recommended the new administrator.

Bloomberg, with Maarten Mittner