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By Kirstin Ridley
LONDON, July 9 (Reuters) - The U.S. owner of the New YorkStock Exchange (NYSE) will take over the running ofLibor in an attempt to restore credibility to the benchmarkinterest rate rocked last year by a global rigging scandal.
A central cog in the world financial system, Libor rates areused as a reference for some $550 trillion in contracts rangingfrom complex derivatives to everyday credit card bills. Buttrust in the London interbank offered rate (Libor) was shaken byrevelations that traders had routinely manipulated it, promptingan overhaul of the system by which it is calculated.
NYSE Euronext will take over Libor from the British Bankers'Association (BBA) for a token 1 pound ($1.50). The BBA, a tradebody, had since the 1980s administered the rate, which reflectswhat banks say they are charged to borrow by other banks.
The focus for NYSE Euronext will be on restoring credibilityand integrity to Libor and ensuring it remains one of the mostimportant global rates, a source close to the situation said,adding that since Libor underpinned the interest rate tradingmarket it was vital to the exchange's own banking and brokeragecustomers.
London is not losing oversight of the benchmark that bearsits name, as the rate will continue to be regulated for the timebeing by Britain's Financial Conduct Authority (FCA).
Tuesday's decision to award the administration of Libor toNYSE Euronext from early 2014 was taken by an advisory committeeappointed in October by the UK finance ministry to find asuccessor to the BBA.
Martin Wheatley, chief executive of the FCA, which startedregulating Libor this April after escalating public andpolitical outrage at the scandal, called the appointment "animportant step in enhancing the integrity of Libor".
But with uncertainty about the future regulation of Libor -and given NYSE Euronext is being bought by U.S. peerIntercontinentalExchange (ICE) for $8.2 billion - noteveryone was convinced by the appointment.
"We had a 'fox guarding the henhouse' issue here, and weshould learn from that," said Bart Chilton, a member of the U.S.Commodity Futures Trading Commission (CFTC) regulator.
Chilton added: "I firmly believe that having a truly neutralthird-party administrator would be the best alternative, and I'mnot sure that an exchange is the proper choice."
STRONG GOVERNANCE
NYSE Euronext did not say in its statement how it wouldaddress such concerns, but the source close to the situationsaid it would involve "a very strong governance and oversightregime". This would based around an oversight committee andinvolve a code of conduct "to ensure there is no repeat of whatwe've seen in the last few years", the source added.
British and U.S. regulators have so far fined three banks-Barclays Plc, UBS AG and RBS - atotal of $2.6 billion and two men have been charged formanipulating Libor and similar benchmark rates. But more banksand individuals remain under investigation.
Thomson Reuters, parent of Reuters which hascalculated Libor and distributed the rates on behalf of the BBAsince 2005, had also expressed an interest in a role in runningLibor, another source said.
The company said it would continue as calculator anddistributor of Libor unless NYSE Euronext decides otherwise.
The FCA's Wheatley had first recommended changes to how thebenchmark was set, governed and supervised last September.
But Libor remains in flux.
The U.S. CFTC wants it scrapped and replaced with areference rate based on actual market transactions, whileWheatley argues that a rapid transition to a transaction-onlyrate is not possible.
Meanwhile, Brussels is also seeking to take on powers heldby national regulators. According to an EU law to be proposedshortly, regulation of major benchmarks like Libor and oilindexes - also at the centre of rigging allegations - could beshifted from London to the Paris-based European Securities andMarkets Authority (ESMA).
In an effort to bridge the gap between British and U.S.views, the IOSCO group of securities regulators will later thismonth propose final principles on the governance of benchmarks,which will be reflected in the upcoming EU draft law.
According to a document seen by Reuters, it will recommendusing market transactions, but will allow for estimates whenmarkets are illiquid. Trading had dried up between banks at theheight of the 2007-2008 credit crunch, making it difficult tocalculate accurate interbank rates.
