European Commission Launches Consultation on Benchmarks and Indices

In the wake of the LIBOR troubles, the European Commission has launched a public consultation on new rules for the production and use of indices and benchmarks in contracts.

The consultation covers all benchmarks--not just interest rate benchmarks, but also indices for stocks, commodities, prices (such as the consumer price index), real estate, pensions and other indices such as those relating to insurance and measures of business sentiment--and seeks to ensure that benchmarks are not subject to conflicts of interest, reflect economic reality, and are used appropriately. The attached paper points out that important indices are produced by a variety of public, semi-public (e.g. exchanges) and private bodies (such as S&P) (which raises the question of whether the regulators will recommend or require regulation of these entities that produce indices), and also that the data that goes into indices is derived from still other sources (which raises the question of whether data contributors might become subject to some regulation). The attached paper also observes that many of the relevant indices are produced by or developed by persons outside the EU, obviously including the United States.

A list of the various questions in the public consultation begins on page 25. Responses to the consultation should be submitted by November 15, 2012.

Lofchie Comment: Any firm involved in the production of any index or benchmark, whether as a producer or contributor, should review the report and consider the increased regulatory obligations to which it might become subject. Firms that are users of indices or benchmarks should review the request for information and consider responding as well.

See next item.