The Wheatley Review of LIBOR in September 2012 set

ICE BENCHMARK ADMINISTRATION LIMITED - OVERVIEW
Background
The Wheatley Review of LIBOR1 in September 2012 set
out a ten-point plan for the reform of LIBOR which
included transferring responsibility for LIBOR
administration from the British Bankers’ Association
(“BBA”) to a new administrator.
Following a rigorous tendering process under the
chairmanship of Baroness Hogg, it was announced on 9
July 2013 that NYSE Euronext Rate Administration
Limited - now called ICE Benchmark Administration
(“IBA”) - would become the new administrator with
effect from early 20142.
The Wheatley Review concluded that there should be
statutory regulation around LIBOR. Both administering
LIBOR and making submissions to LIBOR became
regulated activities from 1 April 2013. LIBOR is the
first benchmark to be regulated.
WHEATLEY REVIEW
SUMMARY OF 10 POINT PLAN
Regulation of LIBOR
1.
Statutory regulation of administration of, and
submission to, LIBOR, including an Approved
Persons regime, with both civil and criminal
enforcement.
Institutional reform
2.
Transfer of responsibility for LIBOR to a new
administrator.
3.
Specific obligations for administrators on governance
and oversight of the rate.
The rules governing LIBOR
4.
5.
About ICE Benchmark Administration Limited
Explicit and clear use of transaction data to
corroborate submissions.
Publication by the administrator of a code of conduct
for submitters covering: guidelines for the explicit use
of transaction data to determine submissions; systems
and controls; transaction record keeping
responsibilities; and a requirement for regular
external audit of submitting firms.
Immediate improvements to LIBOR
ICE Benchmark Administration Limited is a UK
company based in London. It was established for the
sole purpose of administering benchmarks and is now a
wholly-owned subsidiary of the Intercontinental
Exchange group (ICE).
6.
Cessation of LIBOR currencies and tenors with
insufficient trade data to corroborate submissions.
7.
Publication of individual LIBOR submissions after a
delay of 3 months to reduce potential manipulation
and any signalling of creditworthiness.
8.
Encouragement of wide participation in the
compilation of LIBOR by banks including, if
necessary, through new powers of regulatory
compulsion.
9.
Encouragement to market participants to re-evaluate
their use of LIBOR and their contractual contingency
provisions in the event of LIBOR not being
produced.
As the new administrator for LIBOR, IBA became
authorised and regulated by the FCA in February 2014.
1 1 The review was led by Martin Wheatley who was then Managing Director
of the Financial Services Authority (FSA) and CEO-designate of the
Financial Conduct Authority (FCA), and is now CEO of the FCA. “The
Wheatley Review of LIBOR: final report”, available at
https://www.gov.uk/government/uploads/system/uploads/attachment_dat
a/file/191762/wheatley_review_libor_finalreport_280912.pdf.
2 Hogg Tendering Advisory Committee announces that NYSE Euronext is
to be the new LIBOR administrator, available at
https://www.gov.uk/government/policy-advisory-groups/hogg-tenderingcommittee-for-libor.
International co-ordination
10. Work by UK authorities with the European and
international community on the long-term future of
LIBOR and other global benchmarks, establishing
and promoting clear principles for effective global
benchmarks.
The relevant FCA requirements are contained in the FCA’s Handbook, and in particular in section 8.3 of
the chapter on Market Conduct (MAR).
IBA’s approach to Benchmark Administration
The essential elements of IBA’s approach can be summarised as follows:
•
Independent and neutral benchmark administration
•
Set up and resourced solely for the purpose of administering important benchmarks
•
Committed to long-term administration of benchmarks to the highest practice standards
•
A robust and independent governance framework led by a Board with a majority of Independent
Non- Executive Directors (INEDs)
•
Oversight Committees with wide representation to encompass a broad range of perspectives.
For example, our LIBOR Oversight Committee includes representation from the Association of
Corporate Treasurers (ACT), the International Swap Dealers Association (ISDA) and the Loan
Market Association (LMA). Representatives from the Bank of England, the Federal Reserve
Board in Washington and the Swiss National Bank attend meetings as Observers
•
A tailor-made oversight and supervision process which includes sophisticated statistical and
empirical analysis of benchmark submissions. Our post-publication surveillance system and tests
are designed to assess the credibility of submissions and rates by identifying potential breaches of
submission standards and tolerances through a combination of alerts and pattern-matching. We
carry out a range of statistical analysis using bespoke surveillance tools to identify anomalies in
each bank’s submissions relative to its previous submissions, the submissions of other
contributor banks, and related indicators
•
A dedicated surveillance team that reviews every surveillance alert in conjunction with relevant
market indicators and documentation submitted by the banks. We seek to identify breaches of
submission standards and tolerances through a combination of alerts and pattern-matching. Our
follow-up action may include referral to the FCA. In addition we carry out routine visits to
contributor banks to review their processes in action and to add a qualitative perspective to the
surveillance
•
Codes of Conduct setting out good practice for Submitting Banks in respect of internal
governance, systems and controls so as to maintain the highest standards and professional
reputation for the benchmarks we administer
•
Unique experience and expertise in complying with the FCA’s requirements for benchmark
administrators, and we are currently only administrator required to fully comply with these, and
•
We are one of only four administrators to have been formally assessed for compliance with the
IOSCO Principles for Benchmarks.
ICE BENCHMARK ADMINISTRATION LIMITED
FCA requirements
The FCA’s regulatory requirements for benchmarks are contained in the MAR 8 chapter of the
Market Conduct section of the FCA Handbook. MAR 8.2 contains the requirements for
Benchmark Submitters. They must, in summary:
•
maintain effective internal governance and oversight procedures for providing information to
benchmarks
•
put in place organisational arrangements for managing conflicts of interest
•
have an effective methodology, based on objective criteria, for determining their benchmark
submissions
•
keep all relevant records for five years and appoint an external auditor on an annual basis to
report to the FCA on the submitter’s compliance with the submission requirements
•
notify the FCA of any suspicions in relation to manipulation, attempts to manipulate, or potential
collusion to manipulate the benchmark, and
•
appoint an individual, who is FCA-approved, to oversee the firm’s compliance with the FCA’s
requirements for benchmark submission.
The requirements for Benchmark Administrators are in MAR 8.3. In summary, Benchmark
Administrators must be Authorised by the FCA and must:
•
implement credible governance and oversight measures
•
appoint an Oversight Committee which includes representatives of benchmark submitters,
market infrastructure providers, users of the specified benchmark and at least two independent
non-executive directors of the benchmark administrator
•
establish practice standards (i.e. the LIBOR Code of Conduct)
•
identify and manage conflicts of interest that may arise
•
monitor and survey benchmark submissions to identify breaches of practice standards and/or
potentially manipulative behaviour
•
report any suspicious behaviour to the FCA
•
have Whistle-blowing procedures to enable third parties to notify any suspicions to the
benchmark administrator
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ICE BENCHMARK ADMINISTRATION LIMITED
•
maintain sufficient financial resources to cover operating costs for nine months. The assets
must be segregated from those of any other group entity and must be capable of being liquidated
if necessary with minimal adverse price effect
•
have regard to maintaining the integrity of the market and the continuity of the benchmark, and
•
ensure confidentiality of sensitive information.
About ICE LIBOR
ICE LIBOR (“LIBOR”) indicates the interest rate that banks pay when they borrow from each other on
an unsecured basis. It is fundamental to the operation of both UK and international financial markets,
including markets in interest rate derivatives contracts. LIBOR is used to determine payments made
under derivatives by a wide range of counterparties including small businesses, large financial institutions
and public authorities.
LIBOR has global significance. It is referenced by an estimated US$ 350 trillion of outstanding business
in maturities ranging from overnight to more than 30 years.
LIBOR is published every UK business day for five currencies: US Dollars; Pounds Sterling; Euros;
Japanese Yen; and Swiss Francs. Each currency has seven maturities ranging from Overnight to 12
Months.
In the calculation of LIBOR, the
contributing banks for each currency
submit the rates at which they believe that
they would be able to obtaining funding
for each of the maturities.
Currency
US Dollars
Pounds Sterling
Euros
Japanese Yen
Swiss Francs
Number of banks
18
16
15
13
11
The banks’ submissions are ranked for each maturity in each currency and then the highest 25% and
lowest 25% of submissions are excluded. The remaining contributions are arithmetically averaged to
create the final LIBOR rates which IBA then publishes and distributes to data vendors.
IBA’s licensing model
IBA is a legally separate, self-standing business within the ICE group. Our licensing model is transparent
and non-discriminatory.
Since 1 July 2014 IBA has offered four types of data licences:

Redistribution: for redistribution of IBA benchmarks data to third parties, either real-time or delayed
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ICE BENCHMARK ADMINISTRATION LIMITED

Usage: for using IBA benchmarks in valuation and pricing activities or as a reference rate in
transactions and financial products

Exchange or Clearing venue: for offering trading/clearing of financial contracts for which an IBA
benchmark is the underlying reference, and

Historical data: this licence is included within all of the other licences but may also be purchased
separately.
There is a link on IBA’s website3 to historical data for any LIBOR currency. The data is freely available 24
hours after the initial publication.
ISDAFIX
IBA became the administrator for ISDAFIX on 1 August 2014, following an extensive selection process
managed by the International Swaps and Derivatives Association (ISDA).
ISDAFIX is the leading global benchmark for interest rate swaps. It represents the average mid-market
swap rates for four major currencies: Euro (EUR), British pound (GBP), Swiss franc (CHF) and U.S.
dollar (USD), at selected maturities on a daily basis. Market participants use ISDAFIX to price and settle
their derivatives contracts and as a reference rate for floating rate bonds.
On 25 September 2014, the UK government launched a consultation to extend the legislation put in place
to regulate LIBOR to cover further benchmarks in the foreign exchange, fixed income and commodity
markets, including ISDAFIX. The consultation closes on 23 October 2014 and it is expected that
ISDAFIX and six other benchmarks will join LIBOR in April 2015 in being specified benchmarks.
Dated: 20 October 2014
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https://www.theice.com/iba.
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