LIBOR Alternative Launched

Late Tuesday, London-based inter-broker ICAP plc said that Wednesday would mark the the launch of its U.S. alternative to the the London Interbank Offer Rate, or LIBOR. The move comes amid harsh criticism of LIBOR from many market quarters, suggesting that banks intentionally reported lower lending rates than were reality as part of a market signaling strategy during the height of the most recent round of the credit crunch in March. Called NYFR Fixings, ICAP said it initially will collect data on 1- and 3-month rates, but other maturities may be added to the program over time, depending on market interest. “The launch of our new NYFR Fixing index is the result of considerable feedback received from customers,” said ICAP Americas CEO Doug Rhoten. “There has been much discussion about measuring the interbank rate when market conditions are volatile and we believe that a survey conducted during the most active part of the U.S. trading session will give us a concrete measure of actual funding costs.” In particular, the defining feature of the NYFR Fixing index is its anonymity — contributors are not identified by name, only by rate. Rhoten said this feature would help keep “survey results objective during periods of financial strain,” and while ICAP doesn’t expect its new rate to replace the role of the dollar LIBOR, he hopes it can “play a complementary role.” The number of contributors in the NYFR Fixing index will vary from day to day, but a minimum of 16 participants each day will be required in order to publish the rate, ICAP said in a press statement Tuesday. The survey will ask banks for market rates as of 9:15 AM ET and the results will be calculated by 10:00 AM each business day and disseminated shortly thereafter. Here at HW, we’ve been covering ongoing uproar surrounding the London Interbank Offered Rate, and how changes to the key interest rate used to benchmark many adjustable-rate mortgages here in the States may bring the squeeze back to subprime and other borrowers. Sources told HW Wednesday that the launch of this alternative index may help market participants get a read on where LIBOR could be headed next, rather than replacing LIBOR as the benchmark rate used to manage resets. “Given that the NYFR Fixings survey isn’t limited solely to interbank deposits, it could end up being a really useful tool,” said one MBS analyst, who asked that his name not be used. LIBOR asks participants to report on interbank lending rates only, while the NYFR Fixings survey allows banks to report on expected rates across a broad range of collateral. For more information, visit http://www.icap.com.