The Benchmark Regulation: The New Tool in the Fight Against Benchmark-manipulation

Lars Louv-Jansen & Anders Rasmussen

Student thesis: Master thesis

Abstract

In the wake of the financial crisis the bank-industry was subject to another scandal in 2012, which brought even further distrust to the industry. It was revealed that in order for banks and traders to profit they had manipulated their contributions to the widely used benchmarkrate LIBOR (London InterBank Offered Rate), which many financial products depended on. While LIBOR, which is the benchmarkrate with the most financial products tied to it, is still widely used, many other benchmarkrates similar to LIBOR, based on the development on other markets, were subject to the same scrutiny which faced LIBOR. Governments and other stakeholders had simply lost their trust in the banking industry, in terms of accurately and faithfully contributing these benchmarks to the utilization of the general public. CIBOR (Copenhagen InterBank Offered Rate) and CITA (Copenhagen Interbank Tomorrow-Next Average) became subject to Danish legislation, even though an investigation to whether or not these rates had been subject of manipulation, were unable to confirm that manipulation had taken place. The European Union would not stand for this abuse of the financial markets either and adopted Regulation 2016/1011/EU in order to combat potential manipulation in the future. This dissertation seeks, in a theoretical perspective, to conclude whether or not the regulation is effective in its objective, and if the usage of benchmarkrates is beneficial to society after the implementation of the regulation. the thesis concludes, that the necessary incentives for a bank to commit itself in manipulative practices has been struck down, as the regulation focuses strongly on hitting the banks where it hurts, should manipulation occur. Benchmarkrates, when reliable, generally reduces transactioncosts for the public as a whole, as it is easy to access information about where the marketrate is. The EU has, seemingly succeeded in maintaining an effective mechanism for the contribution and usage of benchmarkrates.

Educations, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages120