U.S. Markets

London Stock Exchange's FTSE Russell joins Libor replacement race

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

LONDON (Reuters) - London Stock Exchange LSE.L index compiler FTSE Russell began publishing forward-looking interest rates on Monday, entering a four-way race for a new market opened up by the scrapping of Libor next year.

Regulators want the London Interbank Offered Rate or Libor, which banks were fined for trying to rig, replaced with the Bank of England’s Sonia rate for sterling denominated swaps, loans and futures by the end of 2021.

But market participants have said that the Sonia overnight rate lacks the forward-looking variants or “tenors” that Libor has, making it harder to switch some contracts like interest rate swaps.

FTSE Russell said its Term Sonia Reference Rates or TSRR will be published on an indicative basis for six months to allow potential users to track its performance first.

It will cover 1 month, 3 month, 6 month and 12 month tenors, with live rates set to be published by the end of 2020.

“We have partnered with a diverse mix of market participants to offer an indicative forward-looking risk-free rate for Sterling in multiple tenors,” said Arne Staal, the LSE’s global head of research in information services.

Ending the use of Libor is one of the biggest challenges faced by global markets in decades given its use in derivatives, swaps, loans, credit cards and mortgages worth around $400 trillion.

FTSE Russell, part of the London Stock Exchange LSE.L is competing with ICE ICE.N, which is already the administrator for Libor, IHS Markit, and Refinitiv - which the LSE wants to buy - to become the go-to provider of Sonia term rates.

Thomson Reuters TRI.TO, which owns Reuters News, has a 45% stake in Refinitiv.

Reporting by Huw Jones; Editing by Alexander Smith