05 April 2016

FESE Response to the ESMA Discussion Paper on Benchmarks Regulation

As such, exchanges can be regarded as neutral providers of data, and in certain cases also indices, but without any conflict of interest between trading activity leading to beneficial ownership and the provision of data and/or the provision of indices and benchmarks. FESE supports working with ESMA to construct a workable regime for benchmarks provided by trading venues.

FESE strongly suggest to explicitly clarify that sourcing of raw data (meaning non-processed in a way generating derived data) from data vendors will not result in benchmarks falling outside of the scope of the definition for regulated data benchmarks. In this context, the vendor should be considered as a technical means to source the data from trading venues, and not a separate entity acting in between units.

The MiFID II definition of trading venue referenced in article 3(1) (20a) is not limited to EU trading venues, meaning that the current text does not provide for a separate treatment of 3rd country data providers. FESE considers that the applicable conditions should be explicitly indicated as it is imperative that global-indices that use data from non-EU trading venues are regulated as regulated data benchmarks. Currently, there is discussion to amend the Level I text through the lawyer linguist process in order to encompass benchmarks based on data from trading venues outside the EU as well. FESE strongly supports this necessary adaption of the Level 1 text. Furthermore, in the IOSCO Assessment Methodology a Regulated Market or Exchange is defined as: “A market or exchange that is regulated and / or supervised by a Regulatory Authority.”

FESE considers that the initial goal of the BMR is Investor Protection including secure EU financial markets. In this context it seems natural that any issued financial instrument within the EU which refers to an index provided within the EU should be seen as having been published (made available to the public) alone by its inclusion as an underlying in a financial instrument or as a benchmark for performance evaluation impacting users as well as end investors. Even in case an index is not one of the broadly marketed indices within the EU, it might nevertheless have significant impact on a subset of EU investors depending on their exposure to it.

In general, FESE is supportive of ESMA’s intention to clarify the definition of ‘use of a benchmark’, and the implications of the application of the issuance principle. In providing this clarification, ESMA must consider that trading venues operate in different manners and provide the infrastructure necessary to trade a variety of different financial products but are actually not issuing or taking positions in such instruments. There must also be consideration given to other legislation which captures these products, such as the Prospectus Directive and PRIIPs Regulation and how new standards within the BMR could impact on their functioning. Therefore, it must be clarified that trading venues do not issue financial contracts and should not be consid-ered as ‘issuers’.

FESE as well agrees with ESMA that different Oversight Committees might need to be implemented de-pending on the nature of the benchmark and the knowledge of the actual committees set up by the bench-mark administrator. FESE, however, would deem it sensible that ESMA leaves some discretion to the bench-mark providers in this respect.

Full response

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