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BMR Regulation NewYork, Wednesday June 21st 2017

Agenda

• BMR Regulation Framework

• Evolution from Principles to Regulation

• Index or Benchmark?

• Watch out: Sanctions in 6 month time…

• Benchmark Inventory

• Appendices

TSAM NY June 2017 2

Regulation vs Directive

TSAM NY June 2017 3

AFG/COSSIOM/European IPUG Member

ESAEBA ESMA EIOPA

Other EU Regulator

National Regulator NCA

REGULATIONDIRECTIVE

REGULATOR

AND NATIONAL

PARLIAMENT

TRANSPOSE

DIRECTIVE

EEA Regulatory Bodies

TSAM NY June 2017 4

ESMA

MIFID II MIFIR BMR EMIR

EBA

BASEL III(CRD

IV/CRR)

EBA(regulatory)guidelines

EIOPA

Solvency IIEIOPA

(regulatory)guidelines

BMR

TSAM NY June 2017 5

Benchmark Regulation

BMR

TSAM NY June 2017 6

IOSCO July 2013

Principles for Financial Benchmarks

Benchmark Regulation BMR

Date of Application(24 months post Entry

Into Force

June 30th 2016

Entry Into

Force

March 31st 2017

ESMA Final

Draft RTS

January 1st

2018

January 1st

2020

Deadline for existing

administrator to apply for

registration/authorization

(24 months after Date of

Application)

ESMA Draft

RTS 1

Q4 2016

BMR

TSAM NY June 2017 7

Index vs Benchmark ???

BMR

TSAM NY June 2017 8

An INDEX is any figure:

• that is published or made available to the public

• that is regularly determined:

o entirely or partially by the application of a formula or any other method of calculation, or by an

assessment; and

o 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 is the use of an Index in any of the following ways:

• issuance of a financial instrument which references an index or a combination of indices;

• determination of the amount payable under a financial instrument or a Loan or credit agreement by

referencing an index or a combination of indices;

• being a party to a Loan or Credit agreement which references an index or a combination of indices;

• providing a borrowing rate as defined he interest rate expressed as a fixed or variable percentage applied on

an annual basis to the amount of credit drawn down calculated as a spread or mark-up over an index or a

combination of indices and that is solely used as a reference in a loan or credit agreement to which the

creditor is a party;

• measuring the performance of an investment fund through an index or a combination of indices for the

purpose of tracking the return of such index or combination of indices, of defining the asset allocation of a

portfolio, or of computing the performance fees.

BMR

TSAM NY June 2017 9

Any Index becomes a Benchmark when it

is used in one of the defined ways set out

in the BMR regulation

BMR

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BMR regulates 3 areasAFG/COSSIOM/European IPUG

members businesses in Scope

Use of EU and third country

benchmarks within EU

Administration

Contribution

Asset Management

Investment Banking

Private Banking – Wealth Management

Asset Liability Management

Treasury

BMR


Critical Benchmarks based on both

quantitative and qualitative criteria.

(Total value of at least 500bn EUR)

Significant Benchmarks based on both

quantitative and qualitative criteria

(Total value at least 50bn EUR)

Non-significant Benchmarks covering

a light regulatory regime

(Total value less than 50bn EUR)

There are three categories of benchmarks

There are four separate regimes

Use of third country benchmarks is permitted, based on IOSCO principles, via

1. Commodity benchmarks

(subject to the IOSCO

principles for Oil Price

Reporting Agencies)

2. Interest rate benchmarks

(additional requirements

relating to input data and

contributors)

3. Regulated data

benchmarks

4. All other

benchmarks

Equivalence regime Partial Equivalence regimeRecognition of third country

administrators

Endorsement of third

country benchmarks

BMR


Exempt from BMR

NOT a BMR Benchmark

CRITICAL

Benchmarks based on both

quantitative and qualitative criteria.

(Total value of at least 500bn EUR)

SIGNIFICANT

Benchmarks based on both

quantitative and qualitative criteria

(Total value at least 50bn EUR)

NON-SIGNIFICANT

light regulatory regime

(Total value less than 50bn EUR)

ESMA Publication

Is the level made publicly available?

In Scope?

YES NO

YES

Financial Instruments

Is the level used in a relevant

way for financial instruments?

Exemption?

NO

NO

YES

YES

Your level is a BMR BenchmarkNO

BMR


From January 1st 2018 you will not be able to use a

Benchmark in a NEW transaction, contracts or products

unless it is registered with ESMA !

BMR


Implementation of Benchmark Inventory

BMR


For BMR implementation all AFG/COSSIOM/European IPUG members

need to complete and maintain an inventory of all Benchmark used• All Benchmarks / reference rates you use regularly or would reasonably expect to use

• All Benchmarks/ reference rates used in transactions / products / orders taken in the EU

• Any reference rate which you think may not be a Benchmark

Urgent Action

• Complete spreadsheet (in COSSIOM/IPUG Library) containing questionnaire designed to

capture the Benchmark inventory in Index Licence Manager (ILM)

• Each Portfolio Manager (Gestionnaire d’actif) desk to complete all fields in questionnaire,

providing as much details as possible, including RICs and ISIN codes for the identified

Benchmarks.

• Each Benchmark Sponsor needs to be contacted prior to Jan 1st 2018 !

Issue: Are all AFG/COSSIOM/European IPUG members using a

Benchmark/Index Inventory System?

BMR


Baskets BMR

Non-BMR

Issue of Benchmark baskets in scope and those not in scope of BMR ?

-> To be closed Friday November 24th during European IPUG Event in Paris

BMR Working Group Actions


1. Identify Benchmark instruments in-house

Who to contact?

- Product Control

- Portfolio Management Risk

2. Confirm BMR Questionnaire

- Do it alone

- Join Industry Working Group

3. Send Questionnaire to each Benchmark Provider

4. Aggregate answers in BMR tool / ILM

5. Check and update registration status on ESMA website for each Benchmark Provider

And in the meantime…

• FTSE/Russell acquired Yield Book and Citi Fixed Income indices business

• ICE acquired BAML Fixed Income indices business

Market has now 4 possible suppliers for FI benchmarks

BBRG

MarkIT

FTSE/Russell

ICE

Who is next for JPM???


Add to your calendar

• IPUG Cost Optimisation / Index Licensing SIG• London July 6th

• SIPUG Day • October 31st Zurich

• EUROPEAN IPUG EVENT / COSSIOM• November 24th Paris


Questions & Answers


Appendix

APPENDIX 1


BMR Sanctions for non compliance


Sanctions and other administrative measures:

1- For infringements of Articles 4, 5, 6, 7, 8, 9, 10, points (a), (b), (c) and (e) of Article 11(1),

Article 11(2) and (3), and Articles 12, 13,14, 15, 16, 21, 23, 24, 25, 26, 27, 28, 29 and 34,

-> either EUR 1,000,000 or 10% of its total annual turnover according to the

last available accounts approved by the management body, whichever is the higher.

2- For infringements of point (d) of Article 11(1) or of Article 11(4),

-> either EUR 250,000 or 2% of its total annual turnover according to the last

available accounts approved by the management body, whichever is the higher.

3- Those sanctions where the legal person is a parent undertaking or a subsidiary of a parent

undertaking which has to prepare consolidated financial accounts in accordance with Directive

2013/34/EU of the European Parliament and of the Council,

-> the relevant total annual turnover shall be the total annual turnover of the whole

group.

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