By Douwe Miedema
Jan 27 Swaps broker ICAP will give up
its role in establishing a widely used benchmark for
derivatives, two sources familiar with the situation told
Reuters, after U.S. and UK regulators started investigating the
The International Swaps and Derivatives Association (ISDA)
is expected to announce the change on Monday, in another blow
for UK interdealer broker ICAP after its involvement in the
Libor rate-rigging scandal.
The organization's ISDAfix benchmark is an important
reference point underlying contracts in the $630 trillion
derivatives market, and ICAP collects data for the U.S.
dollar-denominated part of it.
But in April last year, ISDA said it had been subpoenaed by
the U.S. derivatives regulator - the Commodity Futures Trading
Commission (CFTC) - over the benchmark, and ICAP has said it is
involved in that inquiry. Britain's Financial Conduct Authority
is also investigating the benchmark.
ICAP, like rivals Tullett Prebon and BGC Partners
, makes money by matching buyers and sellers of bonds,
swaps and currencies.
The scandal surrounding Libor, which measures rates at which
banks lend to each other, exposed widespread attempts to
manipulate survey-based benchmarks. Banks such as UBS,
Barclays and RBS have paid billions in fines
Last week, Reuters reported that global regulators have now
also started looking at reforming benchmarks used in the largely
unregulated currency market.
The ISDAfix rates are based on a survey of a panel of banks
for a range of different currencies. Until now, ICAP collected
banks' contributions for the U.S. dollar rate, and sent them on
to Thomson Reuters Corp, which calculates the rate.
ICAP has been doing this for more than 15 years, but the
process will now change, and Thomson Reuters will start
collecting data for the U.S. dollar rates just as it does for
the other currencies, the first source said.
"We appreciate ISDA's interest in having a consistent
polling process across each of the relevant currencies and
fixings," ICAP said in a statement.
Thomson Reuters made no immediate comment.
ICAP had been providing "snapshots" using transaction-based
information from its BrokerTec platform in addition to
information from recent deals, the second source said, but the
process would now return purely to a poll of participating
There was a risk this could lead to inconsistencies, due to
the way the dollar-denominated swaps market worked, the person
An ICAP spokeswoman said the company earned some data
revenues from its role in setting ISDAfix, but the changes to
the system would not have a significant impact on the company.
ICAP shares were down 2.4 percent at 405 pence at 1402 GMT,
versus a 0.6 percent drop in the FTSE 250.
Analysts said the ISDAfix reform served as a reminder of the
ongoing investigation, as well as the structural reform being
carried out in over-the-counter markets, which have scope to
disrupt the broker market.
In the United States, trading of interest rate swaps and
credit default swaps through electronic platforms called Swap
Execution Facilities (SEFs) will become mandatory in February.
Monday's wider sell-off of risky assets triggered by
concerns over emerging markets and recent signs that investment
banks' trading revenues remain weak could also be responsible
for ICAP's share price fall, analysts said.
"Over the fourth quarter we haven't seen an improvement in
bond trading, so there's maybe a little bit of realisation of
that reality following a period of over-exuberance in terms of
anticipation," Shore Capital analyst Greenwood said.
ICAP is scheduled to give a trading update on Feb. 5.
ICAP was fined $87 million by British and U.S. authorities
in September over the role of its brokers in Libor-rigging.
Criminal charges were also filed against three of its former