October 22, 2018

FCA published a paper (Evaluation Paper 18/2) that evaluates the impact of the Benchmarks (Amendment) Instrument 2015, which brought seven benchmarks into the regulatory and supervisory regime. These seven benchmarks are Sterling Overnight Index Average (SONIA), Repurchase Overnight Index Average (RONIA), International Currency Exchange (ICE) Swap Rate (formerly ISDAFIX), World Markets/Reuters (WM/R) London 4pm Closing Spot Rate, London Bullion Market Association (LBMA) Gold Price, LBMA Silver Price, and ICE Brent Index.

This paper provides a detailed analysis for each benchmark, summarizes the overall findings of the evaluation, and outlines the main lessons learned. The following are the main findings of the analysis:

  • Most stakeholders believed that the rules made benchmarks more robust to manipulation and more representative of the underlying market, reassuring users about the integrity of the benchmarks.
  • The empirical findings finds that trading costs and liquidity improved for already liquid markets (especially in swap markets).
  • For less liquid markets, the fines, the methodology changes, and regulatory intervention may have increased the perceived regulatory risk, worsening liquidity and participation.

This evaluation is part of the decision-making framework of the FCA Mission. In April 2015, FCA had proposed a framework outlining the way FCA measures the causal impact of interventions. The framework explains the reasons of doing post-intervention impact evaluations, how FCA chooses specific interventions to study, and how it is ensured that the evaluations are robust, impartial, and credible. This evaluation paper follows the proposed approach to post-intervention impact evaluations. The aim of this work is to understand the impact of the Benchmarks Instrument 2015 on markets and firms’ costs and to understand whether the intervention met its objective of increased benchmark robustness. Through the Benchmarks (Amendment) Instrument 2015, FCA had made amendments to the Handbook (notably in MAR and SUP) and guidance outside the Handbook in the Perimeter Guidance manual (PERG). 

 

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Keywords: Europe, UK, Securities, Benchmarks, Benchmarks Instrument 2015, Evaluation Paper, Regulatory and Supervisory Regime, FCA

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