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Exchange operator ICE plans for alternative to Libor

Exchange operator ICE plans for alternative to Libor
FILE PHOTO: A trader passes by a screen that displays the trading info for Intercontinental Exchange Inc. (ICE) on the floor of the New York Stock Exchange (NYSE) March 1, 2016. REUTERS/Brendan McDermid   -   Copyright  Brendan McDermid(Reuters)
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(Reuters) – New York Stock Exchange operator Intercontinental Exchange Inc. said on Thursday it plans to launch a new benchmark to replace the LIBOR, as part of global efforts to scrap its use after a manipulation scandal.

The new benchmark, U.S. Dollar ICE Bank Yield Index, would be based on unsecured bank debt over one, three, and six-month periods, the operator said in a report.

LIBOR, or the London interbank offered rate, gauges what banks charge each other to borrow dollars. It is a benchmark for $200 trillion in dollar-denominated financial products, mostly in interest rate swap contracts.

LIBOR’s reputation has been tainted in the wake of rigging scandals by traders, which resulted in billions of fines for major global banks.

Regulators set LIBOR to be phased out in 2021 and have encouraged alternatives to take its place.

Last April, the New York Federal Reserve and the Office of Financial Research, a government agency, launched the Secured Overnight Funding Rate (SOFR) as a LIBOR alternative.

A handful of companies have begun issuing floating-rate bonds using SOFR as a rate reference, but SOFR is not seen vibrant enough yet for a widespread use.

Rival CME Group said in August it would launch a futures contract linked to Bank of England interest rate meetings.

GRAPHIC-U.S. dollar LIBOR market footprint:

(Reporting by Bharath Manjesh in Bengaluru and Richard Leong in New York; Editing by Arun Koyyur and Diane Craft)

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