Benchmark Regulation (BMR)
Regulation (EU) 2016/1011 of the European Parliament and the European Council on indices used as benchmarks in financial instruments and financial contracts (the “Regulation”)
The Regulation aims to:
- Ensure benchmarks produced or used in the EU are robust and reliable
- Restore confidence in benchmarks
- Protect consumers and investors through greater transparency
- Improve governance and controls over the benchmark process
An Index is any figure published or “made available to the public” (i.e. accessible by a potentially indeterminate number of recipients) and regularly determined.
A benchmark is any index by reference to which the amount payable under an instrument/contract, or the value of an instrument, is determined, or an index that is used to measure the performance of an investment fund.
Benchmark are classified as:
- Critical benchmarks (e.g. – ibor):
Benchmarks used for financial instruments, contracts and performance of investment funds having a total value of at least EURO 500bn, and meeting qualitative criteria such as location of contributors and importance of the benchmark in the country where a majority of contributors is located
- Significant benchmarks:
Benchmarks used for financial instruments, contracts and performance of investment funds having a total value of at least EUR 50bn over a period of six months, and meeting
qualitative criteria such as the benchmark has no reliable substitute, and its absence would lead to market disorder
- Non-significant benchmarks:
Benchmarks that do not fulfil the conditions set for critical or significant benchmarks.
BMR introduces obligations for Benchmark Administrators, Benchmark Contributors and Benchmark Users:
1- Benchmark Administrators: Supervised entities which:
- Administer the arrangements determining the benchmark
- Collect and analyse the input data
- Determine the rate of the benchmark
- Significant benchmarks
2- Benchmark Contributors: Entities providing any input data required in connection with the determination of a benchmark, and provided for that purpose
3- Benchmark Users: Any legal or natural person which:
- Issue an instrument/contract referencing an index/indices
- Be a party to a contract referencing an index/indices
- Determine an instrument / contract payable amount by referencing an index/indices
- Provide a borrowing rate calculated as a spread or mark-up over an index/indices used as a reference in a contract to which the creditor is a party
- Measure fund performance through an index/indices.