DERIVATIVES

ICE pledges to implement market-based swaps benchmark

Intercontinental Exchange has taken over the administration of the ISDAFIX benchmark, a key rate for the pricing and settlement of swaps.

By John Bakie john.bakie@information-partners.com August 04, 2014 9:50 AM GMT

Intercontinental Exchange (ICE) has taken over the administration of the ISDAFIX benchmark, a key rate for the pricing and settlement of swaps.

The new administrator hopes to eventually use a more reliable market-based calculation for the rate to increase confidence in the benchmark.

ICE Benchmark Administration (IBA), which was initially set up to take over the administration of Libor from the British Bankers Association after the rate setting scandal, was appointed to administer the rate in April. It had formerly been managed by the International Swaps and Derivatives Association (ISDA).

ISDAFIX represents the average mid-market swap rate in four major currencies, the British Pound, euro, Swiss franc and US dollar, at selected maturities on a daily basis.

It is used by market participants to price and settle swaps and as a reference rate for floating rate bonds.

Initially, the rate will be calculated using the existing polled submission model, where banks submit mid-point prices to IBA. However, ICE plans to transition to a market-based methodology based on tradable quotes.

With interest rate swap transactions moving to electronic markets as a result of reforms such as the Dodd-Frank Act in the US and European market infrastructure regulation, it will be possible for IBA to use electronic trading data to provide a more accurate and reliable benchmark for ISDAFIX.

Finbarr Hutcheson, president of IBA, said, “We look forward to working with market participants to evolve ISDAFIX from a polled rate to one based on tradable quotes on regulated trading venues. IBA is committed to providing independent and neutral administration services, in line with regulatory requirements, to systemically important financial market benchmarks.”