By Jody Shenn and Matthew Leising Bloomberg News August 15, 2014

NEW YORK Some banks may stop using Libor as a benchmark for interest rates on loans because of new licensing fees being charged by Intercontinental Exchange, which this year took over administering the measure, according to the American Bankers Association.

ICE introduced licensing agreements on July 1 for referencing the benchmark used to create more than $300 trillion of securities, loans, and derivatives, including a usage license that ranges from $8,000 to $40,000 a year.

Previously, Libor London InterBank Offered Rate was free except for companies wanting to redistribute the rates, which paid an annual fee to the British Bankers Association.

Thereve been a number of banks saying they may stop using Libor, Denyette DePierro, senior counsel at ABA, said in a phone interview. While is unclear how broadly ICE will apply the new fees, they appear to be triggered by essentially all uses of the benchmark from a bank having a single old loan on their books to them choosing to participate in syndications or signing derivatives agreements, she said.

Everybodys kind of waiting to see what ICE is going to do, and, from a cost-benefit perspective, do you continue with Libor or not? said DePierro, whose organization lobbies on behalf of the $14 trillion US banking industry.

The way Libor is constructed came under scrutiny in recent years as regulators across the world investigated banks and brokers over allegations traders manipulated key market benchmarks for profit. At least nine firms, including UBS, Royal Bank of Scotland, and ICAP, have been fined more than $6 billion for manipulating benchmark interest rates such as Libor, according to data compiled by Bloomberg.

Under the BBAs oversight, Libor was calculated by a daily poll that asked firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. ICE is updating and improving that process, adding automation and the ability to audit the results. It is also working to include more transactional rates into the calculation.

The new license fees may affect many of the almost 7,000 banks and about 800 firms managing registered investment funds in the United States, according to Federal Deposit Insurance Corp. and Investment Company Institute data. Libor is used globally as well, with firms worldwide falling under the new ICE contract. Hedge-fund managers oversee more than 10,000 individual funds and funds of funds, according to Hedge Fund Research.

Banks that contribute Libor rates to ICE, including JPMorgan Chase & Co. Bank of America, and Barclays, will not be charged the new fees, according to ICE.

A Mortgage Bankers Association spokesman, John Mechem, said the group has been in discussions with ICE to highlight the impact that the proposal would have on the market.

Libor rates are the most common benchmarks for US adjustable-rate mortgages, including ones sold to government-backed Fannie Mae and Freddie Mac.

Spokesmen for the companies or their overseer, the Federal Housing Finance Agency, declined to comment or did not immediately respond to e-mails.

ICE is open to changing the way it charges to use Libor, chief executive Jeff Sprecher said on an Aug. 7 conference call to discuss earnings.

These are relatively modest licensing fees for major users of Libor, he said. We continue to take input from people. Were fine tuning it, Sprecher added. Its amazing how broad the use of Libor is in the world. So were getting a lot of feedback from different kinds of users on how they use Libor. And thats informing our licensing practices, which we continue to evolve.

On the other hand, Sprecher said, people should not be surprised at the new costs associated with making the benchmark less prone to manipulation.

Its caught some people by surprise, he said. Its interesting. There has been a lot of criticism by people that they wanted Libor to be better, but then when theyre asked to pay for it, theyre surprised. It shouldnt be a surprise.

Brookly McLaughlin, an ICE spokeswoman, said Thursday that her company is making a substantial investment in IBA in order to strengthen the benchmark and restore the integrity of Libor as an accurate, reliable, and trusted benchmark, referring to the ICE Benchmark Administration division that now runs Libor. Toward that end we are working closely with the industry as we implement reasonable commercial terms.