LIBOR, or London InterBank Offered Rate, is a rate representing the average rate at which a LIBOR contributor bank can obtain unsecured funding in the London interbank market for a given period and currency.
This is the primary benchmark for short-term interest rates globally and is used in relation to at least C$300 trillion worth of financial products. Rates are calculated based upon submissions from LIBOR contributor banks, though submissions are not necessarily based on actual transactions as not all contributing banks will require funds in a reasonable market size each day for each applicable currency and maturity. If this is the case, banks submit rates based on their credit and liquidity risk profiles and construct a curve to best predict the correct rate in which they have not been active. Rates are submitted at approximately 11:00am London time each day on a confidential basis to a designated calculation agent who processes submissions before they are released to the market by Thomson Reuters and other licensed data vendors. It was misrepresentation of these numbers by certain submitting banks that is at the heart of the ongoing investigation of rate manipulation by applicable regulators.
Given the LIBOR rate fixing scandals that came to light this past summer, the British government commissioned Martin Wheatley, the chair of the newly formed Financial Conduct Authority, to provide his recommendations on how to prevent the reoccurrence of such rate manipulation and reinstate market confidence in the benchmark rate.
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