The publication of the LIBOR Roadmap follows extensive and wide-ranging consultation with market participants, stakeholders, central banks and regulators across the globe which commenced at the end of 2014. The Roadmap sets out evolutionary reforms to reduce the risk profile of LIBOR and create the conditions for more banks to participate, including:

Incorporating transaction data into the LIBOR methodology to the greatest extent possible
Publishing a single, clear and comprehensive LIBOR definition
Implementing a construct for ensuring the rate can adapt to changing market conditions with appropriate consideration for the interests of all stakeholders, and
Conducting a feasibility study on transitioning the calculation of LIBOR to IBA, using transaction data to deliver an even more robust and sustainable rate for the long term

Finbarr Hutcheson, President, ICE Benchmark Administration, said: “LIBOR is the primary benchmark for short term interest rates globally; it underpins more than US$350 trillion in outstanding contracts and much of the world’s financial system. The improvements we have made in the last two years, coupled with this Roadmap published today, are designed to secure LIBOR as one of the world’s most trusted, scrutinised and robust financial benchmarks. We would like to thank the more than 200 market participants, users and contributor banks who continue to work with us to evolve this vital benchmark which is so central to global funding markets.”

The Roadmap, which will be implemented this year, outlines a set of measures to anchor LIBOR in transactions from a broader set of market participants, reflecting changes in banks’ funding models. To support this, IBA has developed a waterfall of methodologies to ensure that LIBOR can be published every day and in all market circumstances, in line with feedback received from the consultation, as well as the direction set by the Financial Stability Board (“FSB”) and other official sector bodies.

In parallel with the evolution announced today, IBA is conducting a feasibility study on the design and implementation of an appropriate algorithm to calculate LIBOR with banks providing only transaction data to IBA. The algorithm, currently in design phase, would use the real-time transaction data provided by contributor banks following the parameters in the waterfall announced today, further minimising the risk for LIBOR contributor banks. It is anticipated that reducing the risk profile of LIBOR will pave the way for increased participation, augmenting the number of transactions that LIBOR is based on and making the benchmark even more robust.