|A trader works on the floor of the New York Stock Exchange. (AP-Yonhap News)|
The independent panel, set up by the U.K. government following revelations last year that the rate had been manipulated, chose NYSE Euronext to take over LIBOR from the British Bankers’ Association, which had supervised the rate-setting for decades.
The changeover is scheduled to be completed by early 2014, the panel said in a statement. It did not identify any other bidders.
“This change will play a vital role in restoring the international credibility of LIBOR,” the panel’s chair, Baroness Sarah Hogg, said in a statement.
LIBOR underpins trillions of dollars of transactions all over the world. It is an average rate that measures how much banks expect to pay each other for loans and is also used in calculating borrowing costs of hundreds of trillions of dollars in loans and investments such as bonds, auto loans and derivatives.
But the setting of LIBOR was underpinned on trust. The scandal emerged when authorities realized banks ― including Royal Bank of Scotland, Barclays and UBS ― were submitting false data to gain market advantages.
U.S. and U.K. regulators fined RBS more than $460 million for rate-rigging. Barclays’ role led to a $453 million fine and the resignation of chief executive, Bob Diamond. Swiss bank UBS was fined $1.5 billion.
After the scandal erupted, the government moved to restore confidence in LIBOR’s integrity, establishing the panel to review the rate and creating criminal penalties for those who violate the rules.
“We want to protect taxpayers and restore faith in financial services,” financial secretary to the U.K. Treasury Greg Clark said in a statement.
The decision to award the tender to a U.S.-based organization will help restore the credibility of Libor, said Mark Taylor, dean of the Warwick Business School and a former managing director of the investment firm, BlackRock.
Taylor said that since much of the criticism of how LIBOR was managed came out of the U.S., having a respected player such as NYSE Euronext take charge will help restore confidence among investors, showing that it is “squeaky clean.”
But British officials expect further reforms to come as part of the package ― such as the documentation of transactions and submissions that are revealed well after the fact. Creating a paper trial will make it harder to manipulate the rate ― despite the temptation to do so, Taylor said.
“What it means is that they will get as close as possible to saying what the true market rate is,” Taylor said.
The rate will be administered by NYSE Euronext Rate Administration Limited, a new subsidiary of NYSE Euronext. The new company will be based in the U.K. and will be regulated in Britain by the Financial Conduct Authority. The global exchange said it is uniquely placed to restore the international standing of LIBOR.
In a statement, the NYSE Euronext said the new division will be able to use the group’s “trusted brand, long regulatory experience and market-leading technical ability to return confidence to the administration of LIBOR.”