Jan. 27 (Bloomberg) -- ICAP Plc is about to be stripped of itsfunction setting a U.S. benchmark for interest-rate swaps asregulators look into whether banks manipulated the measure.

The International Swaps & Derivatives Association Inc.picked Thomson Reuters Corp. to handle collecting data from banksthat are used to calculate the dollar-denominated version ofISDAfix, a measure used in the $426 trillion swaps market,according to ISDA spokesman Steven Kennedy. He said the shift awayfrom ICAP, a London-based broker, will begin this week. Reutersalready handles versions of the rate outside the U.S.

Choosing a single firm to calculate all ISDAfix rates “and otherchanges to be implemented this week strengthen the process,governance and controls for the existing ISDAfix framework,”Kennedy wrote in an e-mail yesterday.

U.S. regulators have found evidence that the rate, which is setdaily based on data reported from banks, was rigged at the expenseof pensions and other institutional investors, Bloomberg Newsreported last year. ICAP operates a desk in Jersey City, NewJersey, where traders collected the bank submissions, which wereused to set the U.S. dollar ISDAfix.

Bloomberg News reported in September that ISDA, a trade groupfor the derivatives industry, planned to set all of the rates basedon actual trades, instead of trusting the information bankssubmitted. Centralizing all ISDAfix calculations with ThomsonReuters is a first step, Kennedy said.

First Phase

ISDA’s changes “mark the first phase of our work to ensurealignment of ISDAfix practices with evolving best practices in thesetting of benchmark rates,” Kennedy said. “The second stage willbe the move to an automated, market-based ISDAfix rate settingprocess, which is expected to begin in the second quarter of2014.”

David Girardin, a Thomson Reuters spokesman, declined tocomment.

“We appreciate ISDA’s interest in having a consistent pollingprocess across each of the relevant currencies and fixings,” ICAPspokesman Guy Taylor said in an e-mailed statement, noting that thebroker’s involvement with ISDAfix stretches back more than 15years. “As swap market structures evolve, we remain committed toparticipating in the development and administration of benchmarkprocesses where we can add value to market functioning andtransparency.”

Benchmark Scandals

Scandals have undermined the reliability of financialbenchmarks. Market authorities in the U.S. and U.K. collectedbillions of dollars in fines from dealers that rigged Libor rates.Separately, Bloomberg News reported last year that banks may havemanipulated foreign-exchange rates.

The U.S. Commodity Futures Trading Commission and the U.K.Financial Conduct Authority are investigating alleged manipulationof ISDAfix, FCA Chief Executive Officer Martin Wheatley toldlawmakers in London in September.

The CFTC issued subpoenas to current and former brokers at ICAP,ISDA and 15 Wall Street dealers as part of its probe, BloombergNews reported last year.

Chris Hamilton, FCA spokesman, declined to comment on thematter.

By rigging ISDAfix, the banks stood to profit on separatederivatives trades they had with clients who were seeking to hedgeagainst moves in interest rates. Banks sought to change the valueof the swaps because the ISDAfix rate sets prices for otherderivatives, which are used by firms such as Pacific InvestmentManagement Co., a person familiar with the matter said lastyear.

Bloomberg LP, the parent of Bloomberg News, competes with ICAPin some businesses, including foreign-exchange and swaps trading,and with Thomson Reuters in providing financial news and data.

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