Financial Benchmark Regulation - Paper - Principles for Financial Benchmarks - IOSCO, April 2013

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

On April 16, 2013, the International Organization of Securities Commissions (IOSCO) released a consultation paper, Principles for Financial Benchmarks, which seeks public comments on a set of high-level principles for benchmarks used in global financial markets.

The closing date for comments was May 16, 2013.


Subsequent to the LIBOR manipulation scandal that began in 2012, IOSCO created a board level task force on financial market benchmarks. On January 11, 2013, the organization published a consultation report and request for comment on the policy issues related to the work of the task force.

The report explores the concerns regarding the potential for inaccurate submission and/or manipulation of financial benchmarks such as LIBOR, EURIBOR, TIBOR and similar benchmarks. Topics discussed in the report include:<ref>IOSCO Consults on Financial Benchmarks. IOSCO. Retrieved on February 21, 2013.</ref>

  • The appropriate level of regulatory oversight of the process of benchmarking;
  • Standards that should apply to methodologies for benchmark calculation;
  • Credible governance structures to address conflict of interests in the benchmark setting process within the reporting financial institutions as well as in the oversight bodies; and
  • The appropriate level of transparency and openness in the benchmarking process.

The report, which also considers issues that market participants might confront when seeking to make the transition to new or different benchmarks, seeks public input on 41 separate questions. The input received by the task force will be used to develop a framework for policy guidance and principles for financial benchmarks.

Summary of the Consultation[edit]

The consultation covers 18 principles in four areas:

Governance principles require:

  • The retention by the Administrator of primary responsibility for all aspects of the Benchmark determination process, such as the development and compilation of a Benchmark and establishing credible and transparent governance, oversight and accountability procedures.
  • The adoption by the Administrator (and its oversight function) of clearly defined written arrangements setting out the roles and obligations of the parties involved in the Benchmark determination and the monitoring of any third party’s compliance with those arrangements.
  • The documentation, implementation and enforcement of policies and procedures for the identification, disclosure, management and avoidance of conflicts of interest, including the disclosure of any material conflicts of interest to Stakeholders and any relevant Regulatory Authority.
  • An appropriate control framework at the Administrator for the process of determining and distributing the Benchmark, which should be appropriately tailored to the materiality of the potential or existing conflicts of interest identified, and to the nature of Benchmark inputs and outputs.
  • An oversight function to review and provide challenge on all aspects of the Benchmark determination process, which should be appropriate to the Benchmark in question (i.e., including its size, scale and complexity) and provide effective oversight of the Administrator.

Quality of the Benchmark principles include:

  • The design of Benchmarks should take into account generic design factors that are intended to result in a reliable representation of the economic realities of the Interest the Benchmarks seeks to measure and to eliminate factors that might result in a distortion of the price, rate, index or value of the benchmark.
  • The data used to construct a Benchmark should be based on prices, rates, indices or values that have been formed by the competitive forces of supply and demand and be anchored by observable transactions entered into at arm’s length between buyers and sellers in the market for the Interest the Benchmark measures. The principle does not prohibit the use of non-transactional data for indices that are not designed to represent transactions and where the nature of the index is such that non-transactional data is used to reflect what the index is designed to measure.
  • The establishment of clear guidelines regarding the hierarchy of data inputs and the exercise of Expert Judgment used for the determination of Benchmarks.
  • The periodic review by the Administrator of the conditions in the underlying Interest that the Benchmark measures to determine whether the Interest has undergone structural changes that might require changes to the design of the Methodology (e.g., the Interest has diminished or such that it can no longer function as the basis for a credible Benchmark).

Quality of the Methodology principles include:

  • The publication of the rationale of any proposed material change in its Methodology, and procedures for making such changes.
  • Clearly written policies and procedures, to address the need for possible cessation of a Benchmark, due to market structure change, product definition change, or any other condition, which makes the Benchmark no longer representative of its intended function.
  • The development of guidelines for Submitters (Submitter Code of Conduct), which should be Made Available to Stakeholders and any relevant Market Authorities.

Accountability principles include:

  • The establishment and publication of a written complaints policy, by which Stakeholders may submit complaints concerning whether a specific Benchmark determination is representative of the underlying Interest it seeks to measure, applications of the Methodology in relation to a specific Benchmark determination and other Administrator decisions in relation to a Benchmark determination.
  • The appointment of an independent internal or external auditor with appropriate experience and capability to periodically review and report on the Administrator’s adherence to its stated criteria and the requirements of the principles.
  • The retention of written records by the Administrator for five years, subject to applicable national legal or regulatory requirements.
  • Relevant documents, audit trails and other documents required by these principles shall be made readily available by the relevant parties to the relevant Regulatory Authorities in carrying out their regulatory or supervisory duties and handed over promptly upon request.

Related Document: Full Report[edit]



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