Investors See Libor Supplanted by 2017

Government benchmark expected to replace key rate in wake of alleged manipulation.

A key interest rate for more than $500 trillion of securities worldwide will be replaced by a benchmark subject to greater government control, according to a plurality of global investors.

Forty-four percent of those responding to a quarterly Bloomberg Global Poll said the London interbank offered rate, known as Libor, will be supplanted by a more regulated model within five years. Thirty-four percent predicted the rate will continue to be set by banks in the current fashion, while 22 percent said they didn’t know.

‘Watered Down’

The proportion of poll respondents predicting that Libor would be replaced was consistent across the U.S., Europe and Asia.

Regulatory Focus

Regulators have sharpened their focus on algorithmic and high-frequency trading since May 6, 2010, when a computer program employed by one firm sparked a 20-minute plunge in stock prices, temporarily erasing $862 billion of market value. The issue emerged again last month when a software malfunction at Knight Capital Group Inc. cost the company $440 million and left it looking for a financial infusion.

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