NEW YORK CITY-Executives behind Libor have been trying for some time to clean house, and on Tuesday, NYSE Euronext was handed the broom. The scandal-plagued benchmark of interest rates on trillions of dollars in financial contracts is being purchased by NYSE Euronext, the U.S.-based firm that manages the New York Stock Exchange, according to the Wall Street Journal.
Based in London, Libor has been on the blocks since last year, when the British Bankers Association—which oversees the rate concern—decided that it was improper for a bank-lobbying organization to oversee a major benchmark. That move followed the revelation that some banks attempted to manipulate the rate for their own benefit, the Journal reports.
Real estate investors, and players in other markets, are waiting to see what impact this move has before making any new moves, Savills US managing director Dan Gorczycki tells GlobeSt.com. “It's the fear of the unknown. There definitely will be some impact but will it be negligible or substantial?
Under the new structure, at least initially, NYSE Euronext plans to continue calculating Libor as it has been determined before, basing the rate on daily estimates from banks on what it would cost them to borrow money from other banks, a UK Treasury official tells the Journal. But the NYSE will add a step: the process will be supplemented by cross-checking banks' submissions against market transactions. Down the road, the NYSE does expect to make changes, in accordance with suggestions made last year by a UK commission.
“In theory, it should have no impact because the rates that are quoted now should be identical to what the new exchange comes up with,” Gorczycki adds. “But based on the fact that banks aren't always truthful in reporting things, the fear is that it could be impactful.”
More specifically, he says, “Libor can only go one direction and that's up, it's not going to go down. It's still under 1% so even if goes up half a percent, when you spread that across hundreds of millions of securities, that will have a real impact on borrowing costs
Terms of the deal were not disclosed. NYSE Euronext will set up a new UK legal entity, NYSE Euronext Rate Administration Ltd., to administer the benchmark. That subsidiary will be regulated by the UK's Financial Conduct Authority. The official takeover will be completed early next year.
“It's a wait and see situation,” Gorczycki adds. “We need returns from how this works. If people see it doesn't make much of an impact, they'll go back to sleep and worry about the next thing.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
