‘Fixing the benchmark’ – Wheatley considers LIBOR overhaul

Jun Anthony Garcia is a Fixed Income Compliance Officer for the Longevity Markets, CVA Management and Portfolio Management groups at a leading global bank. This article is written in his personal capacity; any opinions expressed are his own. The author wishes to extend his thanks and gratitude to Vincent O’Sullivan and Jeannette Andre for their invaluable review comments and suggestions.

Introduction

As regulators across the globe probe several banks over alleged rate-fixing, replacing the London InterBank Offered Rate (LIBOR) is becoming a foregone conclusion. Policy makers are coming around the idea that investors, borrowers and markets need a new global benchmark to reference trillions of dollars in mortgages, loans, securities, and derivative contracts. More than four years since Timothy Geithner sent an e-mail[1] to Mervyn King outlining recommendations for enhancing the credibility of LIBOR, Martin Wheatley published a discussion paper[2] setting out initial proposals for replacing the current benchmark rate. He is also exploring options that would introduce wholesale changes to the current rate-fixing and submission process including modifying the calculation and compilation methodologies and strengthening governance and oversight within contributor banks. Furthermore, the proposals also include introducing a code of conduct that will establish clear guidelines and procedures and extending the purview of the regulatory perimeter to include the setting, submission and administration of LIBOR while also expanding the legal framework to cover LIBOR-related offences.