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Thomson Reuters to oversee key Canadian benchmark rates

Gloria Nieto/The Globe and Mail

Thomson Reuters Corp. has been hired to administer two key Canadian benchmark rates, a move designed to shore up confidence in the country's capital markets in the wake of a global interest rate scandal.

After major global banks were fined billions of dollars for manipulating the London interbank offered rate (Libor), a benchmark rate used to priced trillions of dollars worth of securities, Canadian regulators initiated a review to ensure its domestic equivalent wasn't susceptible to the same manipulation.

Ultimately no impropriety was found in Canada, but the country's securities watchdogs and central bank decided to update the process for setting the domestic rate – the Canadian dealer offered rate, better known as CDOR.

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CDOR is the reference benchmark used to price $10-trillion worth of short-term money market securities and derivatives such as futures contracts, forward rate agreements and swaps. The rate is calculated based on a daily survey of banks, which indicate the rate at which they would be willing to lend to corporate customers through Bankers Acceptances.

Last June the Canadian Bankers Association and the Investment Industry Association of Canada launched a tender process to hire someone that could administer the CDOR rate-setting process. Thomson Reuters has emerged as the victor, and will also be tasked with administering the Canadian overnight repo rate average (CORRA), which is used as a reference for overnight indexed swaps and related futures.

In 2012, IIROC's investigation found no major problems with the way CDOR had been used, but the watchdog identified some weaknesses and governance issues in the CDOR process, as well as a need to strengthen oversight. After meeting with eight different banks that help set the benchmark rate, and working with the Bank of Canada along the way, IIROC said "all participants recognize the potential for manipulation to take place," adding that each firm had internal measures in place to prevent such manipulation.

Since then, the federal government announced it will legislate a regulation-making authority covering banks' financial-benchmark submissions. And now Thomson Reuters has been hired to administer the rate-setting process.

"While there is no evidence of manipulation affecting CDOR or other Canadian benchmarks, we must not be complacent," Bank of Canada deputy governor Timothy Lane said in a speech last March.

"Whether it is a litre of wine, a pound of butter or an interest rate benchmark, there should be no question that measurements for commercial and financial transactions are accurate and fair," he added. "The Bank of Canada and its partners are working hard to ensure that trust is restored."

Woodbridge Co. Ltd., the Thomson family's holding company, owns a majority stake in The Globe and Mail.

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