FCA supervision of benchmarks to be bolstered

AtoZForex.com Lagos – The FCA’s effort to create a more conducive market environment has again been observed as the regulator has proposed implementation of new rules to increase the transparency and flexibility of widely-followed market benchmarks like Libor interest rates, gold or oil. This is proposed by making these benchmarks available to market participants at fair prices.

Following the widely publicised rigging of and Libor interest rate benchmark and currency markets, Britain has required eight major market benchmarks to be run by an independent administrator to reduce the chances of manipulation. Some of these independent administrators include:

  • A unit of ICE exchange now runs Libor or London Interbank Offered Rate, and the daily LBMA (London Bullion Market Association) gold price, which replaced the century-old ‘fix’ in March.
  • The London Metal Exchange has become the administrator for platinum and palladium twice-daily auctions, while the CME Group and Thomson Reuters started to run the LBMA silver benchmark in August 2014.

Over the FCA supervision of benchmarks, the watchdog has expressed concerns about the unconstrained ability of these administrators to set prices fair for benchmarks: “We have subsequently reflected on this issue further and determined that there is likely to be merit in additional rules,” the FCA said in a consultation paper published on Wednesday. The FCA has therefore released a paper, which sets out proposals for “fair, reasonable and non-discriminatory” access to regulated benchmarks, to limit the ability of administrators to “exploit their market power in a way that might hinder effective competition”.

Different fees can be charged to different users only where this is objectively justified having regard to reasonable commercial grounds such as the quantity, scope or field of use requested,” the proposed rule says. The FCA has made it clear that it found it absolutely necessary to ensure that benchmark administrators adopt a system of fair pricing, therefore preventing exploitation and undue excessive returns or distort competition in other ways.

From April this year the FCA was given a suite of powers and sanctions to ensure there is effective competition on the markets it regulates. “By putting in place a rule and guidance in advance, we intend to reduce uncertainty as to what price a benchmark administrator may charge,” it said.

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