BRUSSELS — Today Dan Doctoroff, Bloomberg LP CEO and President, testified before the Committee on Economic and Monetary Affairs of the European Parliament. The following is a copy of his testimony.

GOOD AFTERNOON. MY NAME IS DAN DOCTOROFF. I AM THE CEO AND PRESIDENT OF BLOOMBERG LP, THE MARKET LEADER IN FINANCIAL DATA, NEWS AND ANALYTICS. I AM HONORED TO HAVE THE OPPORTUNITY TO PARTICIPATE IN TODAY’S HEARING, SITTING WITH DISTINGUISHED PANELISTS WHO HAVE DONE SO MUCH TO PROMOTE TRANSPARENCY AND ACCOUNTABILITY IN THE GLOBAL MARKETS. I AM EXTREMELY APPRECIATIVE OF THE GOOD WORK OF THIS COMMITTEE, AND OF ARLENE MCCARTHY WHO NOT ONLY SERVES WITH DISTINCTION AS VICE-CHAIR, BUT ALSO AS THE RAPPORTEUR FOR THE MARKET ABUSE INITIATIVE.

FOLLOWING THE FINANCIAL COLLAPSE OF 2008, MAJOR INTERNATIONAL AND REGIONAL INSTITUTIONS, INCLUDING THE E.U., G20, AND IMF, NOTED THAT A WIDESPREAD LACK OF TRANSPARENCY AND RELIABLE INFORMATION CONTRIBUTED SUBSTANTIALLY TO THE CRISIS.

AS AN ENTITY THAT HAS BEEN PROMOTING TRANSPARENCY FOR THIRTY YEARS, BLOOMBERG IS ACUTELY AWARE OF THE VIRTUES OF A TRANSPARENT REGIME, AND SENSITIVE TO HOW MARKETS AND THE PUBLIC SUFFER IN THE ABSENCE OF TRANSPARENCY.

THE ABSENCE OF RELIABLE DATA MAKES RISK ASSESSMENT, PRICE FORMATION AND VALUATION PRACTICES INCREASINGLY DIFFICULT. BY CONTRAST, A ROBUST TRANSPARENCY REGIME –AND THE MARKET EFFICIENCIES IT ENCOURAGES–FREES CAPITAL FOR INVESTMENT AND JOB CREATION, AND SPURS THE DEVELOPMENT OF USEFUL NEW FINANCIAL PRODUCTS AND INDICES.

TRANSPARENCY FACILITATES EFFECTIVE OVERSIGHT–BOTH GOVERNMENT OVERSIGHT AND THE OPERATION OF EARLY WARNING SYSTEMS IMPLEMENTED BY MARKET PARTICIPANTS. MOST IMPORTANT OF ALL, THE AGGREGATE IMPACT OF TRANSPARENCY IN OUR FINANCIAL MARKETS DRAMATICALLY ENHANCES INVESTOR CONFIDENCE.

THE FAILURE OF LIBOR, WHICH IS TO SAY THE FAILURE OF THE CURRENT MECHANISMS DESIGNED TO INFORM MARKETS OF WHAT BANKS CHARGE EACH OTHER TO BORROW, IS A CLASSIC ILLUSTRATION OF A FAILURE THAT FLOWS FROM A LACK OF TRANSPARENCY. COMMISSIONER ALMUNIA HAS CORRECTLY DESCRIBED THIS FAILURE AS “QUITE SHOCKING”. BENCHMARKS SUCH AS LIBOR THAT RELY ON SUBJECTIVE ASSESSMENTS MADE BY INTERESTED PARTIES CANNOT CONSISTENTLY REFLECT MARKET REALITIES. THIS IS SO, EVEN IN THE ABSENCE OF ANY POTENTIAL WRONG-DOING– AND LIBOR MAY NOT BE ALONE AMONG KEY MARKET INDICATORS IN ITS NEED FOR TRANSPARENCY-FOCUSED REFORM.

WE KNOW WHAT A BETTER SYSTEM WOULD LOOK LIKE. IT WOULD BE CHARACTERIZED BY ACCURACY, TRANSPARENCY, IMPARTIALITY, AND DATA- BASED OBJECTIVITY. THE CHALLENGE, OF COURSE, IS TRANSLATING THOSE LOFTY GOALS INTO A CONCRETE REALITY.

WHAT WOULD THE INPUTS BE FOR A NEW INDEX? WHICH INSTITUTIONS WOULD BE SURVEYED AND HOW? ANSWERING THOSE QUESTIONS WILL TAKE TECHNICAL AND LOGISTICAL EXPERTISE. IT WILL ALSO TAKE A SIGNIFICANT INVESTMENT. WE BELIEVE THE PRIVATE SECTOR, WORKING CLOSELY WITH THE GOVERNMENT, CAN DEVISE ANSWERS. INDEED, BLOOMBERG IS NOW RESEARCHING VARIOUS SOLUTIONS TO MEET THIS MARKET CHALLENGE.

THIS EFFORT IS IN RESPONSE TO REQUESTS FROM POLICY MAKERS, INCLUDING THE EUROPEAN COMMISSION AND THE EUROPEAN PARLIAMENT, FOR A MARKET-LED RESPONSE BASED ON TRANSPARENCY AND REAL-TIME DATA.

BLOOMBERG’S PRESCRIPTION – LETS CALL IT “B-LIBOR”, THE BLOOMBERG INTERBANK OFFERED RATE – IS NOT REVOLUTIONARY. IT SIMPLY APPLIES THE PRINCIPLES OF DATA-BASED ANALYSIS AND TRANSPARENCY.

THE CURRENT LIBOR INDEX IS CALCULATED BY USING BANK ESTIMATES OF THE RATES AT WHICH BANKS EXPECT TO BE ABLE TO BORROW FROM OTHER BANKS FOR VARIOUS PERIODS OF TIME. THE ESTIMATES ARE SUPPOSED TO BE BASED ON ACTUAL LOANS.

ONE KEY PROBLEM WITH THE CURRENT APPROACH IS THE DECLINE IN ACTUAL INTERBANK SHORT-TERM LENDING AND BORROWING. WITH LIMITED ACTIVITY, BANKS – ESPECIALLY EUROPEAN INSTITUTIONS – HAVE FEWER ANECDOTAL TRANSACTIONS UPON WHICH TO BASE THEIR LIBOR SUBMISSIONS.

EXPANDING THE NUMBER OF CONTRIBUTORS TO LIBOR WOULD PARTIALLY ADDRESS THIS ISSUE. ALONG WITH LIBOR’S CURRENT GROUP OF TOP- TIER BANKS REMAINING CONTRIBUTORS, THE INDEX SHOULD BE OPENED TO ADDITIONAL FINANCIAL FIRMS AND OTHER LARGE COMPANIES WHOSE TREASURY DEPARTMENTS KNOW THE BORROW/LENDING RATE OF A DOLLAR OR A EURO. THAT WOULD DIMINISH THE ABILITY OF INDIVIDUAL INSTITUTIONS TO BIAS LIBOR.

THAT REFORM, BY ITSELF, HOWEVER, DOESN’T MOVE US TO THE DATA DRIVEN INDEX ENVISIONED WITH B-LIBOR. THE B-LIBOR INDEX WOULD INCORPORATE CREDIT ELEMENTS CONSISTING OF MARKET-BASED QUOTES FOR CREDIT DEFAULT SWAP TRANSACTIONS, CORPORATE BONDS, COMMERICAL PAPER AND OTHER SOURCES OF MARKET OBSERVABLE CREDIT INFORMATION FOR THE INSTITUTIONS PARTICIPATING IN LIBOR SUBMITTALS. WE WOULD MONITOR THE VARIOUS QUOTES ON CREDIT RELATED TRANSACTIONS ON A DAILY BASIS AND SYSTEMATICALLY QUANTIFY CREDIT PREMIUMS AT VARIOUS SHORT-TERM MATURITY POINTS. WE WOULD THEN ADD THAT CREDIT PREMIUM TO THE RISK-FREE RATE FOR EACH APPLICABLE MATURITY IN ORDER TO CALCULATE B-LIBOR ALONG THE YIELD CURVE.

LET US TAKE ONE VASTLY SIMPLIFIED EXAMPLE. FOCUSING ON EARLY 2009, LETS LOOK AT THE ONE YEAR DOLLAR CREDIT INFORMATION FOR ALL THE BANKS WHICH CONTRIBUTED TO LIBOR AT THAT TIME. USING ONLY ONE OF THE SEVERAL TYPES OF MARKET OBSERVABLE DATA – CREDIT DEFAULT SWAP DATA — WE COMBINE THAT DATA FOR THESE BANKS VIA A SIMPLE AVERAGING PROCESS. DOING SO, WE ESTIMATE AN AGGREGATE CREDIT PREMIUM OF ROUGHLY 1.5 PERCENT. THE RISK FREE RATE AT THAT TIME, IMPLIED BY THE ONE-YEAR OVERNIGHT INDEX SWAP (OR “OIS”) RATE WAS ROUGHLY FIFTY BASIS POINTS (OR ONE-HALF OF ONE PERCENT), THUS IMPLYING A (PRO FORMA) B-LIBOR VALUE OF ROUGHLY 2 PERCENT, THAT IS , 1.5% + 0.5%.

WHILE THIS IS A SIMPLE EXAMPLE, USING ONLY ONE TYPE OF MARKET OBSERVABLE INPUT, IT ILLUSTRATES HOW THE B-LIBOR INDEX WOULD THUS BETTER REFLECT PARTICIPATING BANKS’ REAL COST OF CREDIT, SERVING AS AN EFFECTIVE ALTERNATIVE TO A METRIC THAT IS NOW BASED ON LIMITED ACTUAL INTERBANK BORROWING AND LENDING. WHEN LAUNCHED, B-LIBOR WOULD ALSO REFLECT TRANSACTIONS BY INSTITUTIONS OTHER THAN PARTICIPATING BANKS. ULTIMATELY, WE WOULD EXPECT TO SEE A VIRTUOUS CIRCLE, IN WHICH THE OBJECTIVE DATA OF B-LIBOR ACTUALLY IMPROVES THE CALIBER OF INPUTS INTO LIBOR.

THE MARKET – INCLUDING THE PARTIES TO THE $360 TRILLION IN MORTGAGE, CREDIT-CARD, DERIVATIVE AND OTHER CONTRACTS THAT RELY ON LIBOR AS A BENCHMARK – WOULD GAIN CONFIDENCE IN A FIGURE THAT IS DRIVEN BY THESE MARKET-BASED INPUTS.

THE BEST PROSPECT OF PROVIDING THESE BENEFITS IS THROUGH A PRIVATE SECTOR INITIATIVE THAT WORKS CLOSELY WITH REGULATORS AND THE PUBLIC. THAT IS WHY BLOOMBERG IS OFFERING TO CARRY OUT THIS WORK ON A PRO BONO BASIS. WE ARE WORKING WITH INTERESTED PARTIES – THE UK TREASURY, FSA, AND OTHERS – TO CRAFT A METHOD OF DETERMINING INTERBANK LENDING RATES IN WHICH MARKET PARTICIPANTS CAN HAVE FAITH, AND WHICH IS BASED ON REALTIES MORE THAN ASSUMPTIONS.

IN CONCLUSION, WHAT WE ARE SUGGESTING ISN’T NEW. INDEED, POLICY MAKERS HAVE SUGGESTED THIS FOR YEARS. NOR IS WHAT WE ARE SUGGESTING GOING TO END LIBOR. GIVEN THE WIDESPREAD USE OF LIBOR AS A REFERENCE THROUGHOUT THE GLOBAL ECONOMY, LIBOR MUST BE PRESERVED, AT LEAST IN THE SHORT TERM. WHAT WE ARE ADVOCATING WOULD, HOWEVER, PROVIDE AN INDEX FAR MORE REFLECTIVE OF THE MARKET’S REALITIES AND FAR MORE INDEPENDENT OF ANY SINGLE INSTITUTION’S TRANSACTIONS OR SUBJECTIVE ESTIMATES.COMMISSIONER ALMUNIA HAS DISCUSSED THE NEED TO PUT FINANCE BACK IN THE SERVICE OF THE REAL ECONOMY. MORE TRANSPARENCY WILL DO PRECISELY THAT.

I THANK THE COMMITTEE.

Media Contact for Bloomberg:

Catrin Thomas, +44-20-7392-0673, cthomas106@bloomberg.net