Financial Benchmark Regulation - Comment Letter - Markit - February 11, 2013

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Financial Benchmarks, IOSCO
First Report Released Consultation Released Comment Deadline
January 11, 2013 April 16, 2013 May 16, 2013

IOSCO Consultation Document on Financial Benchmarks
February 11, 2013

In the comment letter, Markit offers three general comments, followed by answers to the questions posed by IOSCO.

  • Applicability of certain issues
    • With the CR having a wide scope and discussing both benchmarks and indices, IOSCO should note that many of the issues it raised will not necessarily be applicable to all products that are in scope of the report. For example, whilst governance and methodology issues are relevant to the determination of the composition of traded indices, due to the nature of these products, the index price might not be calculated by the index sponsor but set bilaterally between counterparties to each transaction. The discussion about challenges in relation to contributions, methodology, and contributors will therefore not be relevant for these products.
  • Benchmark administration by public bodies
    • IOSCO states that it “did not consider BM Administration by public bodies to be in scope.” However, it went on to say that “BMs where a public body acts as mechanical Calculation Agent, as defined in Annex A, are within scope.” We believe it would be useful for IOSCO to clarify the grounds on which it believes that BM Administration by public bodies should not be in scope for regulatory scrutiny or oversight. It is our view that publicly administered BMs, the importance of which can be significant, are exposed to the same issues as other BMs while the incentives to address them will often be low. In this context, we also encourage IOSCO to clarify what is meant by the term “mechanical Calculation Agent”.
  • Survey-based inputs vs. contributions
    • We note that IOSCO uses the term “survey or estimate based” to describe the mechanism that is often applied to collect submissions to a BM. However, we believe that such description is not applicable to the

majority of the relevant indices and benchmarks and we therefore recommend distinguishing between “survey-based” mechanisms, where submitters provide an opinion, estimate or view, and “contribution based” mechanisms, where submitters provide a specific number or price that they derived from various inputs. IOSCO should note that we will use the term “contribution-based” throughout our response, as we believe it more accurately describes the nature of the information that we collect for our indices.



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