The adoption of the proposed Regulation on financial benchmarks was approved by a large majority in the plenary session and it follows a political agreement by the European Parliament and the Council in November 2015.
A benchmark is an index or indicator used to price financial instruments and financial contracts or to measure the performance of an investment fund. The new rules will improve the governance of such benchmarks produced and used in the EU in financial instruments such as bonds, shares and derivatives. The new rules will help to protect investors and consumers as benchmarks determine the value or performance of investments and the level of mortgage payments of millions of households in the EU.
Jonathan Hill, EU Commissioner responsible for Financial Stability, Financial Services and Capital Markets Union said: "Benchmarks are vital for the functioning of our financial markets. Manipulating benchmarks is tantamount to stealing from investors and consumers. So I welcome today’s vote in the European Parliament, which means we now have new rules that will help rebuild confidence in financial markets in the European Union.”
The Regulation will enter into force following formal adoption by the Council, which is expected in May 2016 and publication in the official journal..
Benchmarks are calculated from a representative set of data or information to price a financial instrument or financial contract, or to measure the performance of an investment fund. Examples include the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR), both benchmarks for interbank interest rates; oil price assessments and stock market indexes. In the financial industry, for example, benchmarks determine the prices of many derivatives; in consumers' daily lives, they determine the level of mortgage payments of millions of households in the EU.
The Commission proposed a regulation on benchmarks in September 2013 to improve the functioning and governance of benchmarks produced and used in the EU and to ensure they were not subject to manipulation. The European Parliament and Council reached a political agreement in November 2015.
The Regulation will contribute to the accuracy and integrity of benchmarks used in financial instruments and financial contracts by:
- ensuring that benchmark administrators are subject to prior authorisation and on-going supervision depending on the type of benchmark (e.g. commodity or interest-rate benchmarks);
- improving their governance (e.g. management of conflicts of interest) and requiring greater transparency of how a benchmark is produced;
- ensuring the appropriate supervision of critical benchmarks, such as Euribor/Libor, the failure of which might create risks for many market participants and even for the functioning and integrity of markets of financial stability.
The regulation implements and is in line with the principles for oil price reporting agencies and financial benchmarks agreed at international level by the International Organization of Securities Commissions (IOSCO) in 2012 and 2013, respectively.
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