Cheat sheet: What are Benchmarks?

20 February 2016


Benchmarks Key Issues

A “benchmark” means any commercial index or published figure calculated by the application of a formula to the value of one or more underlying assets or prices, including estimated prices, interest rates or other values, or surveys by reference to which the amount payable under a financial instrument is determined (European Commission’s definition).

News that a number of large banks had been systemically manipulating LIBOR, a widely-used interest rate benchmark, triggered newspaper headlines and regulatory investigations across a number of other markets around the world where benchmarks are set.

Regulators and lawmakers launched probes into possible manipulation of interest rate benchmarks including LIBOR, EURIBOR and TIBOR, and of commodity market prices.

On 18 September 2013 the Commission proposed a Regulation on indices used as benchmarks in financial instruments and financial contracts to restore confidence in benchmarks following LIBOR and EURIBOR scandals.

Earlier, in July 2012, the European Commission proposed amendments to the EU’s Market Abuse Directive (MAD) which was already being reviewed, to prohibit manipulation of benchmarks and to extend its criminal sanctions regime to cover benchmark manipulation.

The European Parliament rapporteur followed with a questionnaire on “Lessons and reform post LIBOR/EURIBOR” and organised a high-level public hearing in the ECON Committee in September 2012.

In the same month, the Commission published a pre-legislative consultation entitled “A Possible Framework for the Regulation of the Production and Use of Indices serving as Benchmarks in Financial and other Contracts”.

At international level, the Bank for International Settlements (BIS) and the organisation of international financial market supervisors (IOSCO) both set up special groups to examine benchmark-related issues and policy, in coordination with the Financial Stability Board (FSB).

The dossier has progressed substantialy. The draft report was presented in the ECON committee in November 2013. The EP is moving fast towards its position in order to start trialogues and agree on the final regulation with the Council by the end of the mandate.


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