Today’s decision to continue pit trading at the London Metal Exchange not only preserves the vanishing tradition of face-to-face bidding, it helps the exchange remain credible in the wake of scandals in the setting of other international benchmark prices -- currencies and the interest rate known as Libor.
A long time ago some big banks decided that it would be good to sell interest-rate derivatives. To do that they needed an interest rate on which to sell derivatives. Various possibilities presented themselves -- Treasury rates or whatever -- but the interest rates that the banks themselves paid on short-term borrowing had an especially obvious appeal as an index.
Societe Generale SA, France’s second-biggest bank, placed sole blame on an ex-trader it didn’t identify for interest-rate rigging that cost it 446 million euros ($607 million) in European antitrust fines.