06.01.2018
By Rob Daly

ICE to Revamp LIBOR

The ICE Benchmark Administrations plans to tweak how it calculates its ICE LIBOR value later this year, according to ICE leadership.

The global exchange operator acquired administration rights to the venerable benchmark from the British Bankers’ Association in 2014, after numerous industry lawsuits related to the LIBOR-fixing scandal of the previous decade.

Despite the developments of the UK’s Sterling Overnight Index Average, the US’s Secured Overnight Financing Rate, and the EU’s Euro Overnight Index Average, Jeffrey Sprecher, chairman and CEO of the Intercontinental Exchange, was bullish on LIBOR’s future.

Jeff Sprecher, Intercontinental Exchange

Jeff Sprecher,
Intercontinental Exchange

“There may be new indices coming into the fixed income market, but LIBOR is not going away,” he said at Bernstein’s annual Strategic Decisions Conference.

The IBA has replaced LIBOR’s previous method of calculation where banks would submit their estimates; the administrator would drop the highest and lowest estimates and then average the remaining estimates.

Participating banks now submit their estimates as well as related transactional data to the UK’s Financial Conduct Authority and the IBA.

“So we’re officially in the same pool,” said Sprecher.

However, the shared pool of data will end after 2021, when the FCA will stop persuading or compelling banks to make LIBOR submissions.

The IBA plans turn LIBOR into a transactions-based calculation using the data that the banks submit with their estimates.

“We plan to roll this out later this year,” he said. “It is already better now and is hard to manipulate given the framework placed upon it.”

The move to improve the transparency of LIBOR is just one step ICE is taking to strengthen trading of fixed-income instruments.

Earlier this week, ICE announced plans for a $685 million all-cash offer for the electronic trading venue TMC Bonds, which follows its $400 million all-cash offer for Virtu Financial’s BondPoint business unit in late 2017.

It is difficult to purchase bonds and is more difficult for smaller participants like family offices and wealth managers, according to Sprecher.

Exchange-traded funds offer family offices and wealth managers easy exposure to baskets of bonds, but some investors want to own the individual bond, he added.

Even trading a list of bonds remains kluge, according to Sprecher. “It is more email-trading of bonds rather than electronic trading.”

With BondPoint and the pending purchase of TMC Bond will further the growth of electronic bond trading, he noted. “Other people are trying to automate the market, which is being segmented by bond type and market model, and we have found a niche that we do very well.”

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