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Reading #2 – Confusion runs deep about Cdor amid suspicions rate is brokenCaroline Kubrak Maciel - #500302704 |
The Canadian investment industry’s self-regulatory organization has found that the process for setting Cdor, the Canadian version of Libor, is murky, complex and could be manipulated, but stopped short of making concrete recommendations on how to fix it.
Cdor, or the Canadian Dealer Offered Rate, is supposed to reflect the rate at which banks lend to one another and, like Libor, it’s calculated by a daily survey of big banks. While most people have never heard of it, Cdor is incredibly important in the fixed income market, affecting prices on some $6-trillion of loans, futures and interest rate swaps.
Despite its role as the mainspring of much of the bond market, no regulator has direct responsibility for Cdor, the banks involved employ complex and often inconsistent methodologies in coming up with their submissions and transparency is lacking, according to a review by Investment Industry Regulatory Organization of Canada that was published on Thursday.
IIROC announced its probe back in July, explaining at the time that the step was in response to the rate-fixing scandal around Libor and not because of concerns it had about the Canadian benchmark.
International regulators are investigating more than a dozen international banks for alleged manipulation of Libor, with two players — UBS AG and Barclays PLC — having paid about US$2-billion in settlements so far.
The Wall Street journal reported this week that one of the banks being investigated, Deutsche Bank AG, made at least US$654-million from bets on Libor in the space of a single year.
IIROC’s review identified transparency as a key issue with Cdor, arising from the fact that the banks that participate in setting the rate employ different calculations that are sometimes “unclear.”
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