19 September 2012, Brussels
Finance Watch on Monday responded to a European Parliament questionnaire on market manipulation and benchmarks.
The response calls for rate-setting mechanisms to be externally regulated. Finance Watch Secretary General Thierry Philipponnat said:
“Benchmarks with a large public impact should not be left purely to private interests.
“The idea of ‘effective self-regulation’ has proven over and over again to be an oxymoron in financial services and is not the way to restore the public’s profoundly shaken trust in the fairness of financial activities.”
The response looks at the key differences between LIBOR and EURIBOR and calls for benchmarks to be based on transactions and to be closely supervised. It also proposes an innovative approach for less frequently traded tenors, and proposes that rate submissions should not be made anonymously towards supervisors.
Mr Philipponnat said:
“When a small group of private actors (panel contributors) works together with a single private interest body (trade organisation or an index/commodity price publisher) to set rates with implications for the economy and the global financial system, then the public interest will be at best ignored and at worst exploited, as we have seen. This situation is inherently unhealthy.
“If we are to restore trust in the financial system, supervisors must be able to control conflicts of interest. This includes situations where an entity can be both judge and jury, where there is moral hazard, and where private actions have large consequences for the public interest.”
The response calls for:
- external regulatory oversight of benchmark setting
- greater use of transaction data
- credible structures for governance and accountability
- transparency and openness in the benchmarking process.
Finance Watch also welcomes the recent BIS and IOSCO commitments to work on Reference Rates used in Financial Markets and on Financial Market Benchmarks, respectively, and looks forward to reading their conclusions.
For further details please contact Greg Ford on +44 7703 219 222 or email@example.com
Finance Watch will present testimony to the Committee on Economic and Monetary Affairs (ECON) of the European Parliament at a Public Hearing on “Tackling the culture of market manipulation – global action post Libor/Euribor” on Monday 24 September 2012 from 15:00 to 17:30 in the European Parliament in Brussels (room JAN 4Q1). The hearing will be web-streamed live on the European Parliament’s webpage Download programme.
The European Parliament questionnaire, promoted by ECON Vice President and Rapporteur Arlene McCarthy MEP, looks at lessons from LIBOR/EURIBOR. The consultation is organised in the context of the preparation of the ECON Committee reports by Arlene McCarthy MEP based on the Commission amended proposals of 25 July 2012 for a Regulation on insider dealing and market manipulation (market abuse) (COM(2012)421) and for a Directive on criminal sanctions for insider dealing and market manipulation (COM(2012)420).
The Bank for International Settlements (BIS) issued an Economic Consultative Committee statement on LIBOR on 10 September 2012, saying: “The BIS Governors have agreed to set up a group of senior officials to take forward examination of these issues, and to consult with the market in order to provide input into the wider official debate coordinated by the Financial Stability Board.” BIS press release.
The International Organization of Securities Commissions (IOSCO) issued a statement on 14 September 2012 saying that it had “constituted a Board Level Task Force on Financial Market Benchmarks to identify relevant benchmark-related policy issues and develop global policy guidance and principles for benchmark-related activities of particular relevance to market regulators.” IOSCO press release.
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