06 June 2013

ESMA and the EBA publish final principles on benchmarks

The Principles are designed to address the problems identified with benchmark-setting processes and will provide benchmark users, administrators, calculation agents, publishers and data submitters with a common framework for carrying out these activities. The application of the Principles will also help in the transition to any potential future EU legal framework for benchmarks.

ESMA and the EBA consider it important that these Principles are implemented by all market participants, with the aim of reinforcing the robustness of the procedures, ensuring transparency to the public and creating a level-playing field, and also by supervisory authorities in their supervisory practices, where relevant and possible.

ESMA and the EBA will review the Principles' application after 18 months, although that time-frame may be altered as necessary, while further work on possible transaction-based alternatives will be carried out by ESMA and the EBA in the near future.

Steven Maijoor, ESMA Chair, said: “The final Principles now give clarity to benchmark providers and users in the European Union about what is expected of them when engaged in this critical market activity. These Principles reflect the wider work being carried out on benchmarks and their immediate adoption will help restore confidence in financial benchmarks and prepare the way for future legislative change.”

Andrea Enria, EBA Chair, said: “The EBA and ESMA believe that these Principles represent a sound interim solution for benchmark providers and users, ensuring that these important market indices are produced in a transparent and reliable manner. We are also continuing our review of the implementation of the Euribor recommendations by the European Banking Federation and aim to publish this in due course.”

ESMA and the EBA have co-ordinated their work with current initiatives underway at EU, Member State and international level and have worked toward aligning the Principles with those being developed by the International Organisation of Securities Commissions (IOSCO).

Further to comments received during the consultation process, modifications were made to the proposed Principles to address:

• Continuity – inclusion of a Principle for the continuity of benchmarks in order to ensure that contingency provisions are in place if the continuity of a benchmark is at risk; and
• Liquidity requirements – the data used to construct a benchmark should represent accurately and reliably the underlying assets or prices, interest rates or other values measured by the benchmark and should be based on observable transactions entered into at arm’s length.

The Principles provide a general framework covering all stages of the benchmarks-setting process including data submission, administration, calculation, publication, the use of benchmarks and the continuity of benchmarks.

A framework for any benchmark setting process should at least include the Principles [see link] in order to instill confidence in financial markets and market participants, and guarantee the necessary accuracy and integrity of the benchmark formation process.

Press release

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