Definition

  • Every contributor bank is asked to base their ICE LIBOR submissions on the following question: “At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11 am London time?”
  • Therefore, submissions are based upon the lowest perceived rate at which a bank could go into the London interbank money market and obtain funding in reasonable market size, for a given maturity and currency
  • “Reasonable market size” is intentionally unquantified: it would have to be constantly monitored and in the current conditions would have to be changed very frequently. It would also vary between currencies and maturities, leading to a considerable amount of confusion
  • All ICE LIBOR rates are quoted as an annualised interest rate. This is a market convention. For example, if an overnight Pound Sterling rate from a contributor bank is given as 2.00000%, this does not indicate that a contributing bank would expect to pay 2% interest on the value of an overnight loan. Instead, it means that it would expect to pay 2% divided by 365

Calculating ICE LIBOR

  • Every ICE LIBOR rate is calculated using a trimmed arithmetic mean. Once each submission is received, they are ranked in descending order and then the highest and lowest 25% of submissions are excluded. This trimming of the top and bottom quartiles allows for the exclusion of outliers from the final calculation
  • Details are shown in the table below. The remaining contributions are then arithmetically averaged to create an ICE LIBOR rate. This is repeated for every currency and maturity, producing 35 rates every business day
NUMBER OF CONTRIBUTORSMETHODOLOGYNUMBER OF CONTRIBUTOR RATES AVERAGED
18 ContributorsTop 4 highest rates, tail 4 lowest rates
10
17 ContributorsTop 4 highest rates, tail 4 lowest rates
9
16 ContributorsTop 4 highest rates, tail 4 lowest rates
8
15 ContributorsTop 4 highest rates, tail 4 lowest rates
7
14 ContributorsTop 3 highest rates, tail 3 lowest rates
8
13 ContributorsTop 3 highest rates, tail 3 lowest rates
7
12 ContributorsTop 3 highest rates, tail 3 lowest rates
6
11 ContributorsTop 3 highest rates, tail 3 lowest rates
5

WHAT IS ICE LIBOR USED FOR?

  • ICE LIBOR is the primary benchmark for short term interest rates globally. It is written into standard derivative and loan documentation, such as the ISDA terms, and is used for an increasing range of retail products such as mortgages and student loans
  • It is also used as a barometer to measure the health of the banking system and as a gauge of market expectation for future central bank interest rates. It is the basis for settlement of interest rate contracts on many of the world's major futures and options exchanges