# New Research Proposes a New Method to Set LIBOR Rates That Could Reduce Effect of LIBOR Manipulation

1 Research Highlights February 7, 2013 ![Marti Subrahmanyam](/sites/default/files/styles/246w/public/assets/images/con_035420.jpg?itok=M0hGBgt6)>

The manipulation of LIBOR is in the news as the rate-fixing scandal widens to other markets, following the British court settlement with the Royal Bank of Scotland and reignites the need to reform LIBOR.

In a new research paper, Professor [Marti Subrahmanyam](http://www.stern.nyu.edu/faculty/bio/marti-subrahmanyam) at NYU Stern School of Business and Professor Rainer Jankowitsch and doctoral student Alexander Eisl at Vienna University of Economics and Business find that an alternative rate-setting process that uses the median of the LIBOR window could significantly reduce the effect of LIBOR manipulation. Their findings also demonstrate that the alternative proposed by the Wheatley Review – to use the mean of the LIBOR window or a random draw from within the window – in fact, exacerbates the problems of LIBOR manipulation.

The paper also:

• Quantifies the present rate-setting process and compares it to several alternative rate-setting procedures
• Sheds light on the underlying manipulation incentives by quantifying their potential effects on the final rate set (“the fixing”)
• Shows the possibility for collusion between several market participants

Read the [full paper](http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2201013), titled, “Are Interest Rate Fixings Fixed? An Analysis of Libor and Euribor.”