The European Securities and Markets Authority (Esma) is seeking input from market players to inform its future proposals on draft Regulatory Technical Standards (RTS) and Technical Advice (TA) of the incoming Benchmarks Regulation (BR) to the European Commission (EC).
The goal of Esma's discussion paper is to improve the governance framework and control over the benchmark process, and ensuring their reliability and protecting users, according to Steven Maijoor (pictured), Esma chair.
"The Benchmark Regulation, once implemented, will ensure the accuracy, robustness and integrity of benchmarks and the benchmark setting process by clarifying the behaviours and standards expected of administrators and contributors," said Maijoor, in a statement. "These requirements will ensure that benchmarks are produced in a transparent and reliable manner and so contribute to well-functioning and stable markets, and investor protection."
Maijoor said the regulator is now preparing for its work on regulatory technical standards and technical advice, and that the proposed changes are aimed at improving the quality of the input data and methodologies used by benchmark administrators; ensure that benchmark contributors provide adequate data and are subject to proper controls; and ensure the supervision and viability of critical benchmarks.
The DP is seeking market feedback in a number of areas including the definition of benchmarks; requirements for the benchmark oversight function; requirements for the benchmark input data; governance and control requirements for supervised benchmark contributors; authorisation and registration of an administrator; and transparency requirements regarding the benchmark methodology.
The exact date when the Benchmarks Regulation will enter into force is still unknown as it has not yet been published in the Official Journal of the EU.
The European regulator will hold an open hearing on the DP on 29 February 2016 in Paris, and will use the responses to its DP to develop detailed implementing measures. Esma will publish a follow-up consultation in Q3 2016.
The Benchmark Regulation has gained momentum in the structured products market with independent index providers and investment banks developing proprietary indices prompting the regulators to resolve ambiguities in definitions around benchmark administrators, calculation agents, and developers, as well as inconsistencies between different guidelines (Esma/Iosco), and regulatory arbitrage (Ucits/non Ucits).
As discussed during a regulatory panel at SRP's 13th Annual European Structured Products & Derivatives Conference issues concerning the market in the upcoming benchmark regulation including also provisions around intellectual property and administration, price discovery inputs, proportionality and grandfathering, will be resolved at Level 2.
The agreement between the European Parliament and the EC on the BR on November 25, 2015, was criticised by the Edhec Risk Institute for condoning "opacity" around transparency requirements in index provisions.
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