London Metal Exchange
LME
The London Metal Exchange(LME) is the global centre for industrial metals trading.
ID: 897792317185-95
Lobbying Activity
Response to Application of qualitative criteria for critical benchmarks
7 Jul 2017
European Commission Consultation on draft delegated acts under Regulation (EU) 2016/1011 of the European Parliament and of the Council (the “Benchmarks Regulation”)
The London Metal Exchange (“LME”) welcomes the opportunity to provide comments on the draft delegated acts published by the European Commission supplementing the Benchmarks Regulation.
1) Draft Delegated Regulation specifying technical elements of the definition laid down in paragraph 1 of Article 3 of the Benchmark Regulation
The LME supports the clarifications proposed in the draft delegated regulation in which the term “made available to the public” is deemed to have been satisfied where the index is made accessible to a potentially indeterminate number of legal and natural persons of the than the index provision or other than a determined number of recipients. We believe that this offers a proportionate and reasonable balance to the scope of the Regulation.
We believe, however, that in order for the efficacy of this statement to be maintained, some further clarification on this phrase is required and in particular it should be made clear that the publication is for commercial purposes and should exclude any publication that is done in order to satisfy other regulatory obligations. This is particularly relevant in light of the incoming regulatory obligations under MiFIR requiring trading venues to publish pre- and post-trade transparency and to grant access to prices falling within the MiFIR definition of “benchmarks”.
In addition, we note that recital 19 to the Benchmark Regulation states that “Reference prices or settlement prices produced by central counterparties (CCPs) should not be considered to be benchmarks because they are used to determine settlement, margins and risk management and thus do not determine the amount payable under a financial instrument or the value of a financial instrument.” We support and agree with this recital and believe that the policy objective of scoping out such prices is entirely justified. Further, we note that Article 2(2)(a) of the Benchmarks Regulation states that the Regulation shall not apply to “a central counterparty (CCP), where it provides reference prices or settlement prices used for CCP risk-management purposes and settlement”. Again, we support this. However, in many cases, such as on the LME market, the reference prices or settlement prices which are used by the CCP are actually produced by the Regulated Market (i.e the London Metal Exchange), rather than its affiliated CCP. We believe that additional clarification could be provided in order to confirm that prices which are produced by a Regulated Market, but which are used by a CCP for risk management or settlement purposes, should benefit from this exclusion, and can continue to remain outside the scope of the Benchmarks Regulation notwithstanding their publication to facilitate settlement and margining by market participants.
2) Draft Delegated Regulation specifying how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed.
We support the proposals contained in the draft regulation. We note, however, that article 4 permits a very broad discretion in cases where the values are incomplete and permits administrators to use proxies and amounts or value reported by private providers of information or open interest data calculated and published by market operators. This is subject to them being sufficiently reliable and of sufficiently good repute. Whilst we support the introduction of alternative methods we note that this could lead to significant regulatory arbitrage and therefore a considerable difference in those benchmarks which are deemed to meet the relevant threshold and those that are not. We believe, therefore, that it may be appropriate for ESMA to introduce further guidance at the level of Q&A in order to clarify this.
Read full responseMeeting with Jonathan Hill (Commissioner)
18 Apr 2016 · Call for Evidence
Meeting with Jonathan Hill (Commissioner)
2 Oct 2015 · European Market Infrastructure Regulation/Markets in Financial Instruments Directive II