IOSCO published its final report, “Principles for Financial Benchmarks,” which provides an overarching framework of principles for benchmarks used in the financial markets. The report establishes guidelines for benchmark administrators and other relevant bodies in the following areas:
- Benchmark quality;
- Quality of methodology; and
- Accountability mechanisms.
The report recommends that the application and implementation of the principles should be proportional to the size and risks of each benchmark and/or the administrator and the benchmark-setting process.
Lofchie Comment: One of the principal issues in the benchmark debate was whether benchmarks should be based on actual transactions, a position that had been strongly advanced by the CFTC. IOSCO rejected this position, albeit very gracefully, with the following language: “The Data Sufficiency Principle provides that a benchmark should be based on prices, rates, indices or values that have been formed by the competitive forces of supply and demand and anchored by observable transactions entered into at arm’s length between buyers and sellers in such an active market. The final report clarifies that this does not mean that individual benchmark determinations must be constructed solely or even predominantly by transactions or that data must be used in a certain order” (emphasis added). In response, CFTC Chairman Gensler declared victory, saying: “I am pleased that the IOSCO Principles issued today require that benchmarks be anchored by observable transactions. . . .”