On 12 June 2014, the UK Government announced the establishment of the ‘Fair and effective markets review’ (the Review) which would run for 12 months and look into the way UK wholesale financial markets operate. The Review is expected to make recommendations on:

  • principles to govern the operation of fair and effective markets, focusing on fixed income, currency and commodities;
  • reforms to ensure standards of behaviour are in accordance with those principles;
  • tools to strengthen the oversight of market conduct;
  • whether the regulatory perimeter for wholesale financial markets should be extended, and to what extent international action is required; and
  • additional reforms in relation to benchmarks, in order to strengthen market infrastructure.

HM Treasury has now published a consultation document which seeks views on the first set of recommendations from the Review, concerning which additional major financial benchmarks should be brought into the regulatory framework originally implemented for LIBOR.

In order to identify the major benchmarks in the fixed income, currency and commodity (FICC) markets, the Review has identified the following criteria which benchmarks must meet in order to be recommended for inclusion in the UK regime:

  • benchmarks that are major FICC benchmarks. The Review defines ‘major benchmarks’ as those that have the greatest usage within the main FICC product markets. It is these benchmarks that would have the biggest impact on retail and wholesale investors if they were distorted or abused, and would represent the greatest source of systemic vulnerability and risk if their integrity were questioned;
  • benchmarks where the main benchmark administration activities are located in the UK. The Review’s recommendations only cover UK-based benchmarks due to the appropriateness and limits of legislative reach; and
  • benchmarks that are based on transactions in financial instruments which are not covered comprehensively by existing market abuse regulation.

In its consultation document HM Treasury asks if the above criteria is appropriate and whether other criteria should be included.

Based on the above criteria, the Review has identified the following major benchmarks in the FICC markets which it recommends should be brought into the UK regulatory perimeter:

  • Sterling Overnight Index Average (SONIA);
  • Repurchase Overnight Index Average (RONIA);
  • WM/Reuters’ FX benchmark rates (WMR);
  • ISDAFix;
  • ICE Brent Futures;
  • LBMA Silver Price; and
  • London Gold Fix.

In its consultation document HM Treasury asks if the above benchmarks meet the Review’s criteria and whether there are other benchmarks that should be listed.

The deadline for comments on the consultation document is 23 October 2014.

View Government consults on extending LIBOR powers to more financial benchmarks, 25 September 2014