A fresh start

NYSE Euronext can help heal Libor scars

The choice of NYSE Euronext as overseer of Libor could help heal finance's wounds. True, the exchange operator's victory in the bidding process to manage the scandal-ridden benchmark was not obvious: NYSE Euronext's forte is compiling equity indices, rather than rates for mortgages or loans.

But the exchange group's outsider status may have worked in its favour. Thomson Reuters, the parent company of Reuters Breakingviews, also coveted the contract. Yet, its role in providing the data set to the British Bankers' Association for setting Libor means it was tainted by involvement. Until the BBA hands over Libor matters to the Big Board-owner, at the start of next year, Thomson Reuters will continue to crunch the numbers. After that, NYSE Euronext will almost certainly choose its own data feeder.

NYSE snapped up the contract from the BBA at the bargain price of one pound, according to a source familiar with the situation. No other commercial details are available, but Libor is the world's pre-eminent benchmark, used to set upwards of $500 trillion worth of financial instruments. If NYSE Euronext can restore its credibility, the reputational fillip will be worth a great deal.

Jingoists may get excited about the prospect of a company based in New York and continental Europe running the London interbank offered rate. That looks especially relevant given an American regulator called for Libor to be abolished. But the UK's Financial Conduct Authority will continue to regulate Libor. What's more, the NYSE Euronext administrative entity that will manage the benchmark will be based in London.

Assuming NYSE Euronext passes its final regulatory checks, the easy parts of Libor reform will be close to completion. A code of conduct published on July 5 followed the introduction in December of criminal sanctions for wrongdoers via the Financial Services Act 2012.

It will be much harder to ensure that Libor always reflects the true state of the markets. Even if transactions in other instruments are used as backstops, when liquidity drains from markets, Libor will remain a mark to make-believe exercise.

But the exchange group's victory in the bidding process means financial markets can at least look forward to a clean break with the past.