Presentation on theme: "New European Regulations covering Investable Indices Two new sets of European Regulations covering Benchmarks (Indices) where there are investment products."— Presentation transcript:
New European Regulations covering Investable Indices Two new sets of European Regulations covering Benchmarks (Indices) where there are investment products linked to them IOSCO - International Organisation of Securities Commissions First attestation required July 14 thereafter annually in July ESMA-EBA - European Securities Markets Associations & European Banking Authority One off attestation in December 14 whether fully or proportionally compliant ESMA-EBA goes further than IOSCO IOSCO gives guidance, ESMA-EBA says you must comply ESMA-EBA Principles consist of General Principles – where the attestation must be fully compliant Supporting Principles where the attestation can be proportional Relevant Examples for Diamond based Indices follow
Who is impacted? The regulations effect: Index Administrators Owners of the index, normally the IP & Trademarks Calculation Agents Perform the daily index calculation (can be the same entity as the Administrator but then internal segregation is needed) Index Publishers Publishes the index to websites / Bloomberg / Reuters – could be the same entity as the Administrator or Calc Agent Index Submitters Separate legal entities Index Users Could be the same entity as the administrator or a 3 rd party under licence e.g. product issuers / derivative exchanges
The ESMA-EBA Principles - Administrators 1 General – 17 Supporting Principles “a benchmark administrator should establish methodologies with well defined criteria.... so that discretionary decision making is limited” “methodologies should be rigorous, systematic and continuous... any amendments should be transparent and be published” “data used... should be sufficient to represent accurately and reliably the underlying asset prices.... data should be anchored by observable transactions entered into at arms length between buyers and sellers” “the administrator should fully disclose the methodology to the public.... such as weightings and prices of components” Governance – “include independent members... Names disclosed to the public... declare conflicts of interest” “require Submitters to publically and periodically confirm adherence to the principles” “have contingency provisions in place for lack of submissions / lack of liquidity”
The ESMA-EBA Principles – Submitters 2 General – 11 Supporting Principles Internal policies – covering submission process, governance, systems, training, records, audits etc Conflicts of interest policy – “to avoid collusion between submitters”.. “inappropriate influence” Record keeping for at least 5 years Governance – accountable, named entities / individuals, ensure consistent and timely delivery of submissions Internal control mechanisms – verifiable data e.g. back up invoices, process for making amendments Submitters must attest to Administrator that they comply with principles to allow Administrator to attest compliance for indices based on submissions – one is therefore dependent on the other
The ESMA-EBA Principles – Calculation Agents / Publishers Calc Agent - 1 General – 8 Supporting Principles Robust calculation of the index / appropriate controls Keep all records of interactions with submitters & with administrator Systems for pre / post calculation control Policy for communicating errors Publisher – 1 General – 7 Supporting Ensure reliable publication Pre-post publication control Policy for publishing errors
The ESMA-EBA Principles – Benchmark Users 1 General – 2 Supporting “regularly assess benchmark... is it appropriate, suitable, relevant for the targeted market” “use sufficient due diligence to ascertain that Administrator / Calc Agent comply with principles”... may rely on attestation by Administrator” When using the benchmark for financial transactions: “user required to inform its clients about the continued appropriateness, suitability and relevance of the benchmark”* * This is key to making the diamond indices investable and to enable financial advisors to place their client money into diamond linked products.