Why CDOR Needs More Transparency

An investigation calls for more CDOR transparencyThis summer the banking world was shaken by what is now commonly referred to as the “LIBOR Scandal“. LIBOR is the London Interbank Offered Rate, and is used in the UK to set the cost of borrowing. It was revealed at that time that a number of financial institutions like Barclay’s and UBS had been involved with manipulating the daily interest rates, ultimately affecting $500 trillion on a global scale.

After the LIBOR scandal in England, the Investment Industry Regulatory Organization of Canada (IIROC) launched its own investigation into our country’s process of setting rates. Called Canadian Dealer Offered Rate (CDOR) it is the Canadian equivalent to LIBOR.

Earlier this month, IIROC published its review of CDOR supervisory practices. It found the process needs to be more transparent.  “IIROC initiated this policy review of current practices among CDOR survey participants in 2012 in light of global developments relating to survey-based reference rates and to strengthen the oversight of CDOR going forward,” said Susan Wolburgh Jenah, IIROC President and Chief Executive Officer.

Although very important, Canadians know very little about CDOR, which affect $6-trillion in investments worldwide. Here’s what you should know and what the review means.

What is CDOR?

According to the TMX website, CDOR, is the recognized benchmark index for bankers for short term loans, and serves both money and derivative markets. Like LIBOR it’s also determined by a daily survey.

How is CDOR Set?

As detailed on the TMX website, CDOR is determined daily from a survey of nine market makers in bankers’ acceptances (BA), including:

  • BMO Nesbitt Burns
  • CIBC World Markets
  • Deutsche Bank
  • HSBC Bank Canada
  • National Bank Financial
  • RBC Dominion Securities
  • Scotia Capital Inc.
  • TD Securities Inc.

This survey is conducted at 10:00 a.m. each business day, with the results being quoted on CDOR page of Reuters’ Monitor Service by 10:15 a.m. on the same day.

 What Are IIROC’s Recommendations?

In its review of the CDOR process IIROC is recommending the enhancement of a few key areas. They say it will strengthen the integrity and confidence in CDOR. IIROC wants specific documented criteria for participation in the rate setting process. In addition, it wants more explicit documentation regarding the definition, calculation methodology and transparency of CDOR. Finally it’s calling for detailed documented regulatory expectations for participants’ supervision of rate-setting activity and controls to prevent potential manipulation.

How is CDOR Different From LIBOR?

There is an important difference between LIBOR and CDOR. CDOR is a lending rate, while LIBOR is a borrowing rate. CDOR is the rate at which contributors are willing to extend credit to corporate clients, while LIBOR is the rate contributors are willing to borrow at.

The Bank of Canada, federal Department of Finance, and other Canadian regulators have agreed to consider the issues identified in IIROC’s review. Considering the large amount of investments it affects this is a welcome change. In the case of the LIBOR  it was reported that even 0.01 per cent can be worth $4 million to the bank. Its important that with so much money at stake the process is transparent, honest and consistent.


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