January 10, 2013 / 10:53 PM / 5 years ago

Canada recommends rate reforms in wake of Libor woes

TORONTO (Reuters) - Canada should clarify the criteria used for setting its benchmark rate for banker’s acceptances and tighten controls to prevent manipulation, a Canadian regulatory body said in a study spurred by revelations of the London Interbank Offered Rate rigging scandal.

IIROC, the Investment Industry Regulatory Organization of Canada, a self-regulatory body entity that oversees all investment dealers, launched the review of the Canadian Dealer Offered Rate (CDOR) in August.

It said at the time it was not aware of any concerns with how the rate was set, but noted a need for increased scrutiny given the unfolding Libor scandal.

More than a dozen banks have been probed by authorities in Europe, Japan and the United States over suspected rigging of Libor, which is used in financial contracts worth hundreds of trillions of dollars globally.

Unlike a UK review last year that called for comprehensive reforms for Libor, IIROC’s study did not recommend major changes to CDOR.

However IIROC - which sent its study to the Bank of Canada, federal Department of Finance and other Canadian regulators - pointed out weaknesses in oversight, and said that not all of the entities that participate in setting CDOR calculate the rate the same way.

“Most firms use similar inputs in calculating their submissions, but there is variation in a number of the assumptions made,” IIROC said.

It also said the criteria for determining who can help set the rate are unclear, and noted there is no regulatory body with specific oversight over how the rate is set.

While IIROC is a self-regulatory body for investment dealers, it has no authority over banks that own the dealers and contribute to the calculations, it said.

The regulatory body says specific documented criteria should be laid out for participation in the rate-setting process and is calling for a clear definition and calculation methodology for the CDOR rate.

It also is recommending a clearer regulatory regime for the rate and controls to prevent manipulation.

CDOR is determined daily by a survey of bid-side rates provided by the main market-movers, including the major Canadian banks. The survey is posted by Reuters.

The participating firms are Bank of Montreal (BMO.TO), Canadian Imperial Bank of Commerce (CM.TO), Deutsche Bank AG, HSBC Holdings (HSBA.L), Bank of America Corp (BAC.N), National Bank of Canada (NA.TO), Royal Bank of Canada (RY.TO), Bank of Nova Scotia (BNS.TO) and Toronto-Dominion Bank (TD.TO).

Reporting By Cameron French; Editing by Tim Dobbyn

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