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MDSL’s ILM: A Benchmark Directory ready for the European Benchmark Regulation

Apr 25, 2017

From January 2018 you will not be able to use a benchmark in a new transaction, contract or product unless it is registered with ESMA. You will need an auditable inventory of all the benchmarks you use.

Under the 2016 European Benchmark Regulation, financial services firms on the buy-side, sell-side and custodians will need to implement new governance processes to audit their benchmark usage. For example, for indices used in financial products, you’ll need to understand their authorization status and classification (critical, significant, non-significant etc.) as determined on an ESMA register, and to identify which indices are designated as substitutes in the event that the benchmark loses its authorization status.

MDSL’s Index License Manager (ILM) helps you meet your regulatory obligations by providing a management tool to track your benchmark usage. Not only can you store all the license agreements, indexes and families, you can also store the catalogues from third party index aggregators. These catalogues allow firms to map a standard set of indexes onto their own portfolio of benchmark consumption (typically this is funds, structured products and data licenses for users). Combining this with the various BMR16 classifications required by an ESMA register, this mapping allows you to check that your benchmark usage is in accordance with the regulation because you can see which products are using authorized benchmarks (or otherwise), what their substitutes could be, the named authorised administrators with their competent authority, status and EU endorsing administrator.

When an event occurs such as the withdrawal of the registration of an administrator, or benchmark, or the cessation of the administration of a critical benchmark, a task can be triggered in ILM for the owners of the affected products to perform a review and remedy if necessary.

ILM includes sandboxing functionality which allows you to compare substituting one benchmark for another (e.g. on a fund) and see the impact of such scenarios. ILM can be used as a repository for the supporting documentation released with each benchmark such as the Benchmark Statement and Compliance Statements.

 Features summary

  • Inventory tool tracks the allocation of the benchmark to the product(s) consuming the benchmark (e.g. fund, structured product).
  • Catalogue of benchmarks used, including key attributes per benchmark;
    • BMR Classification: Benchmark as Critical, Significant or Non-Significant.
    • BMR Role: Administrator, Contributor, Supervised Entity (User)
    • BMR Authorization status of the benchmark provider (Art. 29)
    • Uploading and management of Benchmark Statements (Art. 27)
    • Secondary /substitute benchmark selection (e.g. in the event of cessation. Art 28)
    • BMR Regime Classification
      • Interest Rate
      • Commodity
      • Regulated Data (with sub-options for: Organized Trading Facility, Multilateral Trading Facility, Regulated Market, Approved Publication Arrangement, Consolidated Tape Provider, Trade repository, Electricity, Natural Gas, Auction Platform)
    • BMR Regulatory Competent Authority
  • Sandboxing

  • Task Management

  • AUM/NV Reporting by product (e.g. fund, structured product)

  • Audit reporting

Download the ILM For The Benchmark Regulation Datasheet here

Written by Calero-MDSL