The allegations and cases of benchmark manipulation across the globe have caused a number of governments and regulatory bodies to scrutinise how benchmarks are set and administered.
At EU level, on 1 January 2018, Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds entered into full application, subject to certain transitional arrangements. The stated overall objective of this EU regulation is to help restore confidence in the integrity of benchmarks by enhancing the robustness and reliability of benchmarks, facilitating the prevention and detection of their manipulation and clarifying responsibility for and the supervision of benchmarks by the authorities. It regulates the administration of, contribution to, and use of a broad range of indices and replaces corresponding benchmark regulatory regimes previously in place in various Member States.
What is a benchmark?
Any index by reference to which the amount payable under a financial instrument or financial contract, or the value of a financial instrument is determined …
… an index that is used to measure the performance of an investment fund with the purpose of:
- tracking the return of such index, or
- defining the asset allocation of a portfolio, or
- computing the performance fees.
- that is published or made available to the public,
- that is regularly determined, entirely or partially, by the application of a formula or any other method of calculation, or by an assessment, and
- on the basis of the value of one or more underlying assets or prices, including estimated prices, actual or estimated interest rates, quotes and committed quotes or other values or surveys.
Any of the instruments listed in Section of Annex I of MiFID II:
- for which a request for admission to trading on a trading venue (as defined in MiFID II) has been made, or
- which are traded on a trading venue or via a systematic internaliser (as defined in MiFID II).
Any credit agreement covered by the Consumer Credit Directive or the Mortgage Credit Directive (as implemented in Luxembourg)
Any UCITS or AIF
What exemptions will apply under the BMR?
Where they contribute date to, provide, or have control over the provision of, benchmarks for public policy purposes, including measures of employment, economic activity, and inflation.
Where they provide reference prices or settlement prices used for CCP risk management purposes and settlement.
Single reference prices
Where the single reference price is for an instrument listed in Section C of Annex I of MiFID II.
Press, media, journalists
Where they merely publish or refer to a benchmark as part of their journalistic activities with no control over the provision of that benchmark.
Any person (consumer and mortgage credit)
Where it grants or promises to grant credit in the course of its trade, business or profession, only insofar as that person publishes or makes available to the public its own variable or fixed borrowing rates set by internal decisions and applicable only to credit agreements covered by the Consumer Credit Directive or the Mortgage Credit Directive entered into by that person or a company within the same group with their respective clients.
- the benchmark is based on submissions by contributors which are in majority non-supervised entities,
- the benchmark is referenced by financial instruments for which a request for admission to trading has been made on only one trading venue (as defined in MiFID II), or which are traded on one such trading venue, and
- the total notional value of financial instruments referencing the benchmark does not exceed EUR 100 million.
‘Involuntary’ index providers
Where the index provider of an index is unaware and could not reasonably have been aware that the index is used for the purposes set out in the definition of a ‘benchmark’ under the Regulation.
What ‘use’ of benchmark will be restricted by the BMR?
- the issuance of a financial instrument, which references an index or a combination of indices
- the determination of the amount payable under a financial instrument by referencing an index or a combination of indices
- the determination of the amount payable under a financial contract by referencing an index or a combination of indices
- being party to a financial contract which references an index or a combination of indices
- providing an interest (expressed as fixed or variable percentage applied on an annual basis to the amount of credit drawn down) calculated as a spread or mark-up over an index or a combination of indices and that is solely used as a reference in a financial contract to which the creditor is a party
- measuring of the performance of an investment fund through an index or a combination of indices for the purpose of tracking the return of such index or combination of indices, of defining the asset allocation of a portfolio or of computing the performance fees