IOSCO unveils benchmark principles in response to Libor manipulation

Jul 17th, 2013 | By | Category: ETF and Index News

The International Organisation of Securities Commissions (IOSCO) has published its final report on financial benchmarks.

IOSCO unveils benchmark principles in response to Libor manipulation

IOSCO has published its final report on the principles for financial benchmarks.

The report, entitled ‘Principles for Financial Benchmarks’, offers a framework of principles for the creation and administration of financial indices and benchmarks, and addresses many of the issues which ultimately led to the manipulation of key interest rates.

The principles have been devised to enhance the integrity, reliability and oversight of benchmarks by establishing guidelines concerning governance, quality, methodology and accountability for benchmark administrators and other relevant bodies.

The report is a direct consequence of recent investigations and enforcement actions regarding attempted manipulation of major interest rate benchmarks – most infamously Libor. Those investigations and enforcement actions raised concerns over the fragility of certain benchmarks, caused by vulnerabilities in their methodology, transparency and governance arrangements.

Martin Wheatley, Chief Executive of the UK Financial Conduct Authority, said: “Benchmarks are a useful and important tool in many financial markets. These principles set out clear and robust standards that will improve their construction and oversight of benchmarks, and form an important step in restoring their credibility. The FCA is at the forefront of the benchmark reform agenda, and we look forward to working with our international partners to drive up standards across the market.”

Gary Gensler, the Chairman of the US Commodity Futures Trading Commission, added: “Given the known problems with Libor, Euribor and other significant market benchmarks, I am pleased that the IOSCO Principles issued today require that benchmarks be anchored by observable transactions and subject to robust governance processes that address potential conflicts of interest.”

IOSCO is asking benchmark administrators to publicly disclose their compliance with the principles within twelve months. Benchmark administrators covered by the principles include both mainstream index providers such as S&P Dow Jones, MSCI, FTSE and Barclays, all of which are key players in the exchange-traded funds arena, as well as niche providers such as Platts and Argus in the commodities space.

Platts has already come out to affirm its commitment to complying with the principles in its capacity as an oil Price Reporting Agency (PRA). Larry Neal, president of Platts, said: “Platts supports initiatives by legislators and regulators to assure confidence in price benchmarks in the oil markets and other physical commodities markets that we cover. Our broad implementation of the IOSCO PRA Principles for oil and other commodities is evidence of this support.”

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