Over the past three years, ongoing reforms around the rate-setting process for the London Interbank Offered Rate (LIBOR) have reduced subjective inputs, increased transparency and transformed ICE LIBOR into a robust benchmark with strong governance. As the world’s most experienced administrator of regulated benchmarks, ICE Benchmark Administration is leading the reform efforts to ensure LIBOR continues to evolve in its role as an accurate benchmark for short-term rates to meet the long-term needs of market participants.
Market Participants Say LIBOR’s Ongoing Evolution is Crucial
During broad consultations with regulators and over 1,000 market participants, we reached the consensus that the continued evolution of LIBOR is vital to ensure LIBOR retains its integrity and relevance in today’s increasingly complex funding markets and can be relied upon by the market participants who depend on it.
Key Reforms that Ensure LIBOR’s Long-Term Sustainability
By building strong governance around LIBOR, ICE Benchmark Administration has strengthened oversight of the benchmark, taken a market-based approach that minimizes subjectivity, and brought increased transparency and confidence into the rate-setting process with a highly regulated, process-driven methodology.
Critical benchmark reforms include:
The Future of LIBOR: Moving Toward a Transaction-Based Benchmark
Basing LIBOR on transactions as much as possible was the strategic direction set by the Financial Stability Board in 2014, and endorsed by regulators and central banks around the globe.
Toward that end, we’ve developed a standardised methodology, known as the waterfall, for formulating LIBOR submissions and plan to gradually transition submitting banks to the waterfall methodology as outlined in our reform roadmap.
This methodology is designed to ensure that panel banks use transactions from a wide pool of funding sources where available, and ensure panel banks can always make a submission based on objective data regardless of transaction activity on a particular day, minimizing the use of subjective judgement.
As we continue our LIBOR efforts, our focus is on ensuring the benchmark remains sustainable for the future and evolves to meet the dynamic needs of the global marketplace.