The text of the Benchmarks Regulation as finalized after the conclusion of the trilogues, ensures further legal clarity for users of benchmarks by foreseeing a definition of the “use of a benchmark” rather than a definition of concrete groups of users (as was the case in the initial legislative proposal). From the asset management industry’s perspective, the main category of use into which investment funds fall, is the one referenced in article 3 para 1 point 7(e) related to the “measuring 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”.
EFAMA is really surprised to see that benchmarks used for the purpose of assessing the performance of an investment fund, are the ones to be sorted out as the single case of performance benchmarks that should be included in the scope of this Regulation. In particular, as this Regulation aims at ensuring the proper functioning of the internal market and therefore eliminating risks of conflicts of interest and manipulation and therefore targeting benchmarks that are susceptible to those risks. As stated above, investment funds are highly regulated financial products. Non-index tracking funds do not use indices to price their net asset value and a physical index tracking fund’s value is determined by the value of the assets held in the portfolio and not by the benchmark. These features make those benchmarks’ susceptibility to manipulation by funds extremely narrow. Therefore, the single reference to those type of indices in the definition of a benchmark seems to be disproportionate and creating a non-level playing field for investment funds.
EFAMA welcomes the fact that the requirements for users deriving mainly from article 19 are concrete and are stating that users and supervised entities, such as UCITS and AIFs, may use a benchmark or a combination of benchmarks if it is provided by an administrator included in the ESMA register. Therefore, it is EFAMA’s understanding that by confirming a benchmark is made available by an administrator referenced in the public ESMA register, users can consider this benchmark as compatible with this Regulation with no additional controls required from their side.
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