The Benchmarks Regulation

What is an index?

The Benchmarks Regulation defines an index as any figure:

1. that is published or made available to the public
2. that is regularly determined:

• entirely or partially by application of a formula or any other method of calculation, or by an assessment; and
• on the basis of the value of one or more underlying assets or prices, including estimated prices, actual or estimated interest rates, quotes and committed quotes, or other values or surveys

A benchmark means any index "by reference to which the amount payable under a financial instrument or a financial contract, or the value of a financial instrument, is determined, or an index that is used to measure the performance of an investment fund with the purpose of tracking the return of such index or of defining the asset allocation of a portfolio or of computing the performance fees".

What is a benchmark administrator?

A benchmark administrator within the meaning of the Benchmarks Regulation is a "natural or legal person that has control over the provision of a benchmark".

Provision of a benchmark means "administering the arrangements for determining a benchmark, collecting, analysing or processing input data for the purpose of determining a benchmark; and determining a benchmark through the application of a formula or other method of calculation or by an assessment of input data provided for that purpose".

Benchmarks Regulation requirements for benchmark administrators

The Benchmarks Regulation introduces requirements for benchmark administrators who must comply with rules on governance, conflicts of interest, the introduction of controls, benchmark transparency to users and investors and the introduction of a code of conduct for contributors.

Benchmarks Regulation requirements reflect the importance of the benchmark concerned, i.e. on whether the benchmark is critical, significant or non-significant. Special requirements also apply to interest rate and commodity benchmarks, supplementing or replacing the main requirements of the Benchmarks Regulation.

Critical and significant benchmarks are defined in articles 20 and 24 of the Benchmarks Regulation. A benchmark is non-significant if it does not fulfil the conditions for consideration as a critical or significant benchmark.

Administrators must be authorised or registered by their competent national authority if they are located in the European Union, or via one of the three third country methods if they are established outside the European Union, to ensure that the indexes they provide can be used in the European Union. AMF is the competent authority for France.

Special procedure for use in the European Union of benchmarks provided by benchmark providers located in a third country

Before a benchmark provided by a benchmark administrator located in a third country can be used in a Member State of the European Union, the European Commission must adopt an equivalence decision for its country of origin, pursuant to article 30 of the Benchmarks Regulation.

If there is no equivalence decision:

• the administrator must obtain prior recognition from the competent authority located in the European Union, pursuant to article 32 of the Benchmarks Regulation; or
• the benchmark provided must be endorsed by an administrator located in the European Union through the competent national authority for that administrator, pursuant to article 33 of the Benchmarks Regulation.

Article 51 of the Benchmarks Regulation also includes transitional provisions that allow benchmarks provided by an administrator located in a third country and already in use in the European Union to continue to be used in new contracts, financial instruments and investment funds until 31 December 2021 while awaiting an equivalence decision or preliminary recognition or endorsement.

The ESMA register

As of 1 January 2018, ESMA will maintain a public register on its website that contains:

• the identities of authorised or registered administrators located in the European Union;
• the identities of administrators located in third countries who meet equivalence requirements and a list of their benchmarks that can be used in the European Union;
• the identities of administrators located in third countries who have been recognised by the competent authority of their Member State of reference and a list of their benchmarks that can be used in the European Union;
• a list of benchmarks provided by a third country administrator that have been endorsed by an administrator located in the European Union for use in the European Union.

The register will enable supervised entities that use benchmarks to check that, pursuant to article 29 of the Benchmarks Regulation, those benchmarks have been provided by administrators that are authorised or registered by ESMA or, if the benchmark is provided by an administrator located in a third country, that the benchmark itself is registered by ESMA.

List of Benchmark administrators authorised or registred by the AMF