THE EU BENCHMARKS REGULATION IN BRIEF
From 1/1/2020, many indices used by EU market participants must be authorised in order for that usage to continue. A number of uses are covered:
Index tracking UCITS and AIFs
Other funds constrained by indices (including many active funds)
Financial instruments whose payoffs or fees are derived entirely or in part using indices
Index derivatives, CFDs, swaps and other financial instruments - whether actually traded inside or outside the EU
Financial contracts such as mortgages & loans
For existing arrangements to continue, third country index providers whose indices are used in any of the ways noted above will have to either seek recognition as a third country index provider, or endorsement of their indices. Without one or the other, any existing usage has to cease by 1/1/2020.
RECOGNITION OF THIRD COUNTRY INDEX PROVIDERS
Under this option, the index provider applies for “recognition” via one of the EU’s National Competent Authorities. As part of its application, it is required to demonstrate it has a contractual agreement with an EU-based “legal representative” that takes on the legal risk of providing benchmarks within the EU, and that together with the index provider, “oversees” the provider's indices. Moorgate Benchmarks offers this service.
The authorisation covers existing and future indices, presuming they are governed in accordance with the regulation.
The third country index provider has a direct relationship with the EU regulator.
ENDORSEMENT OF THIRD COUNTRY INDICES
Under this option, Moorgate Benchmarks applies to the appropriate National Competent Authority to endorse an index provider's indices as suitable for use within the EU. Moorgate takes on an oversight role together with the index provider.
This approach transfers the majority of EU-based legal risk from the third country provider to Moorgate Benchmarks.
No direct relationship is required between the third country index provider and the EU regulator.
Under endorsement, only specified indices are deemed compliant and therefore available for use within the EU. Any new indices created after the initial authorisation have to be added to the EU benchmarks register through an additional application process.