As part of the process of overhauling financial benchmarks in the wake of the London interbank offered rates LIBOR scandal, the task of calculating and distributing Canada’s two major benchmarks has been handed to Thomson Reuters.
Following a tender process held by the Canadian Bankers Association (CBA) and the Investment Industry Association of Canada (IIROC), the firm has been appointed administrator for both the Canadian Dollar Offered Rate (CDOR) and Canadian Overnight Repo Rate Average (CORRA). Thomson Reuters took over the role of CDOR administrator on Dec. 31, 2014, and will start administrating the CORRA by March 31, the firm said Tuesday.
Policymakers have been reforming the way that financial benchmarks are calculated, administered, and overseen in the wake of the widespread evidence of market manipulation in connection with various LIBOR benchmarks that has been exposed over the past couple of years. While there has been no evidence of manipulation involving the Canadian benchmarks, regulators have nevertheless been addressing vulnerabilities revealed by the LIBOR scandal to prevent similar issues.
In the wake of that episode, global regulators have revised their principles for the administration and oversight of financial benchmarks, and national regulators have been embarking on reforms to follow these new principles. Last year, IIROC introduced a new industry code of conduct for banks submitting to CDOR, and banking regulators revised their guidelines for submitting banks too.
“We have been entrusted with two of the fundamental metrics of Canada’s financial system,” said John Cooley, global head of indices and reference rates, Thomson Reuters. “We are delighted with this appointment, and will continue working with the industry in consultation with the authorities in Canada and internationally to promote effective and accurate reference rates for the financial system.”
CDOR is the primary financial benchmark in Canada. It is determined daily from a survey of seven market-makers, including the major Canadian banks, and is used to determine the interest on approximately US$9 trillion of interest rate swaps, C$750 billion in exchange traded derivatives, and C$130 billion in floating-rate notes, Thomson Reuters reports.
And, it notes that CORRA measures the average cost of overnight collateralized funding, and is used as the reference for overnight indexed swaps and futures. It represents the volume-weighted average rate of overnight repo transactions conducted through inter-dealer brokers, involving general Government of Canada collateral.