Libor, ring-fencing and the Risk Awards


LIBOR is in the headlines once again as the issue of replacing the benchmark causes trouble

RING-FENCING is causing more headaches as banks grow impatient for final rules

THE RISK AWARDS recognise derivatives excellence at Citi, BlackRock, Citadel and others

COMMENTARY: Libor's legacy

This week, six interdealer brokers on trial in London were acquitted of crimes related to the Libor-rigging scandal. The men were accused of conspiring with convicted UBS trader Tom Hayes, who was imprisoned last year, but the jury cleared them of all charges of conspiracy. Elsewhere, though, the aftershocks of the Libor scandal continue to rumble.

Moves to replace Libor with another unsecured benchmark rate such as Eonia have hit a pothole, with the news that volumes have dropped so low in the unsecured money markets that the Eonia rate is now highly volatile and "almost meaningless", according to Eurex. A revised Eonia methodology is one possible solution, as is using a rate based on secured lending.

There was one piece of good news, however – a legal expert said at a conference in the Hague that a change of benchmark was unlikely to lead to widespread and disruptive terminations of Libor-based contracts. Speaking at the same conference, senior FSB advisor Darrell Duffie said regulators will eventually have to push the market on to better reference rates if it didn't move by itself.

And research by has found that hugely costly and embarrassing conduct scandals such as Libor-rigging and mis-selling have drawn far more management attention and resources to culture and conduct risk than before, in particular at major UK banks.


QUOTE OF THE WEEK – "This is all still very new – Sef trading is only a few years old, and I think that at this point our rules should allow for some variety. We'll see how practices develop [and] we'll see what the market wants" – CFTC chairman Timothy Massad

STAT OF THE WEEKEonia has gone through bouts of high volatility since at least 2010, but extremely low volumes in the underlying money markets – which have dropped as low as €7 billion ($7.6 billion) recently – now mean the fixing is barely meaningful. By comparison, average outstanding volumes in Eurex's GC Pooling repo market total €150 billion


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