ESMA Issues Latest Updates to Benchmark Regulation Q&A

The European Securities and Markets Authority (ESMA) has published the latest set of updates to its Q&A on the EU Benchmarks Regulation (BMR). The Q&A has been created to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of the Regulation.

BMR has been created by the EU to ensure consistency of benchmarks regulation across the bloc, and to tackle rate-rigging and benchmark manipulation. The Regulation comes into force on January 1, 2018 and will demand benchmark Administrators, Contributors and Users put in place robust new compliance procedures and systems.

In the updated Q&A, published on September 29, ESMA provided clarification on several areas, including:

  1. The application of BMR to EU and third-country central banks – ESMA states that BMR does not apply to central banks, including EU-based central banks and third-country central banks. As a result, benchmarks provided by central banks will not to be included in the official register of approved benchmarks, but they will be available for use by supervised entities.
  2. Exemption on single reference price – ESMA states that BMR excludes single reference prices from the scope of the Benchmarks Regulation that are only reflecting the value of “any financial instrument”. The exclusion would not cover, for example, a basket of securities or an index based on the price of more than one financial instrument.
  3. Family of benchmarks – Administrators can group benchmarks into families when they publish their benchmark statements. Benchmarks by the same administrator may be grouped into a family if “they are determined from input data of the same nature, and if this input data provides specific measures of the same or similar market or economic reality”.
  4. Use of a benchmark – The following entities will be viewed as “using a benchmark” in relation to the determination of an amount which is payable by reference to an index, or a combination of indices under a derivative:
    1. A trading venue, where the derivative is the subject of a request for admission to, or is traded on such a trading venue
    2. The investment firm acting in the capacity of a systematic internalizer, where the derivative is traded via a systematic internalizer
    3. A CCP, where the derivative is cleared by such CCP
    4. Each party to a transaction of a derivative, where none of points (a) to (c) applies

To read ESMA’s updated Q&A in full, click here.

With the enforcement date for BMR approaching fast, RIMES is advising buy-side firms to audit how they use benchmarks to determine their risk exposure under the new regime. Similarly, firms should inventory the benchmarks they use to understand how they will be affected by the Regulation, and put in place a list of potential replacement benchmarks to mitigate the consequences of any market withdrawal. To find out if you’re going to be affected by the BMR, you can complete our questionnaire.

To receive more information about RegFocus® BMR, the most advanced benchmarks validation solution on the market which solves all regulatory obligations under the new Benchmarks Regulation, please contact us.

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