The consultation document covers a wide range of benchmarks which are constructed in significantly different ways (i.e. certain benchmarks are based on polled rates and others are based on transactions or are calculated through a combination of data on transactions, bids and offers). Data for benchmarks as described by the European Commission is also being sourced from different markets (i.e. transparent, regulated markets in the case of certain benchmarks and less transparent and less regulated OTC markets in the case of others). Moreover, these indices are used as a basis for a large number of financial products that are traded across all asset classes, e.g. equities, fixed income, derivatives and commodity markets.
Consequently, FESE distinguishes benchmarks by dividing them into the following three categories:
(a) Benchmarks based on polled rates which are sourced from non-regulated data sources, excluding information indicators (especially in cases where they are prone to a conflict of interest);
(b) Benchmarks based, in whole or in part, on transaction data from OTC markets;
(c) Benchmarks based on transaction data from regulated markets.
FESE believes that it is appropriate that all benchmarks should be brought within the scope of civil and criminal sanctions against manipulation, and their governance, transparency and calculation methodology arrangements should be subject to a set of high level principles which are being devised by IOSCO.
Should policy markers engage in future discussions on benchmarks and indices and the need to preserve market integrity, FESE believes that these discussions should be in line with the goals of the Commission’s current work on both MiFID/R and MAD/R, and should focus on ensuring independence, and transparency.