MOORGATE BENCHMARKS RECEIVES FCA AUTHORIZATION AS BENCHMARK ADMINISTRATOR UNDER BMR
Moorgate Benchmarks (“Moorgate”), the independent service provider to the index industry, today announced that it is now authorised by the Financial Conduct Authority (“FCA”) as a Benchmark Administrator under the European Benchmarks Regulation (“BMR”). Moorgate’s BMR status is a reflection of the company’s high standards in benchmark administration, and the quality, reliability and integrity of its benchmark services.
Benchmarks are a vital part of the investment ecosystem, enabling the independent assessment of investment manager performance, and underlying the creation of tradable investment products that give investors access to a huge variety of different investment opportunities, themes and strategies.
The FCA authorisation will allow Moorgate to continue to provide superior indexing services throughout Europe once the regulation comes into force on January 1st 2020, when unauthorised index providers will have to cease European use of their benchmarks. It will also allow Moorgate to continue to offer services that allow non-EU index providers to maintain access to the European financial markets. In the event the UK leaves the EU, Moorgate will be able to offer services that allow EU and third country index providers to maintain access to the UK financial markets.
Gareth Parker, Chief Indexing Officer of Moorgate, said: “Our authorisation as a Benchmark Administrator is the result of pre-existing strong governance and months of detailed project work. The BMR team at Moorgate can now focus on assisting our third country recognition and endorsement clients gain their own authorisations.”
Tobias Sproehnle, Chief Executive Officer of Moorgate, said: “The European Benchmarks Regulation is the most important piece of legislation for the index industry, and represents a global standard of excellence in the provision of index services. Receiving FCA authorisation as a Benchmark Administrator is a key step for Moorgate and we are very proud to have achieved this milestone.” 04 July 2019
“BMR: “CONFUSION AND
The EU Commission press release regarding the introduction of a new category of low-carbon benchmarks was remarkable in a number of ways.
First, in that the Commission intends to define the acceptable constituents of a group of benchmarks. Initially, this is in the low carbon area, but the implication is worrying.
Second, in admitting that the administrators of most critical benchmarks within the EU were (despite having years to prepare) still not ready for the full introduction of BMR at the end of 2019.
And third, for foreseeable “unforeseen consequences” in allowing all third country benchmarks an additional two years before their authorisation or registration is obligatory – lower protection for EU investors, and comparative advantage for third country benchmark administrators over EU administrators.
A few clear takeaways emerge:
• Despite some confusion and much lobbying, there’s no transition extension for EU administrators of significant and non-significant benchmarks – if they aren’t authorised by the end of this year, their benchmarks cannot continue to be used in the EU.
• EU benchmark users, who were expecting clarity through only being permitted to use regulated EU and non-EU benchmarks, are now going to have to expend additional energy on assessing the suitability of critical and non-EU benchmarks for the next two years, and on amending their “robust written plans” for handling benchmark cessations.
• EU benchmark administrators are at a competitive disadvantage in that they will have to pay two years of compliance costs and regulators’ fees, whereas non-EU administrators can continue to sell their indices into the EU without doing so. (Although there are some competitive disadvantages to being unregulated.)
• If an EU administrator can change domicile to a non-EU country they could take advantage of the extended transition for third country administrators..
Our CIO, Gareth Parker, is going to attempt to unravel the impact of these changes for third country administrators, and the implications of the UK Treasury’s announcement regarding “UK BMR”, in a webinar for one of our partner companies, Bovill. Details can be found here: http://goo.gl/jrwuC1 01 April 2019
WELCOMES ASIFMA’s REPORT ON
ASIA PREPAREDNESS FOR BMR
ASIFMA, the Asia Securities Industry & Financial Markets Association, and Herbert Smith Freehills, have today released a report regarding preparedness in Asia for the European Union Benchmarks Regulation (BMR). The long and short of it – preparedness is low, due to concerns about the availability of the EU-based competence to assist Asian benchmark administrators, and the possible high cost of contracting with a suitable organisation.
Moorgate Benchmarks is working with a number of Asian and other non-EU benchmark administrators in this area, and will be announcing its first partners receiving recognition or endorsement services in the near future. So while we agree with ASIFMA and HSF that the process is complex and the difficulties significant, we encourage Asian administrators to see reaching EU authorised status as eminently achievable, given the right EU-based partner. 01 November 2018
CHINA STOCK SUSPENSIONS:A QUICK PRIMER
A number of our clients have been discussing with us the long-standing, but only recently broadly recognised issue of Chinese A-share companies listed on Shanghai and Shenzhen using their ability to unilaterally decide to suspend their own shares for periods of up to six months, in order to reduce or avoid price falls. More worryingly, the reason for doing so is suspected to often be to avoid the companies or their owners receiving margin calls on loans taken out against their own shares.
The result of these suspensions is, from the point of most investors, their inability to then sell their holdings during the suspensions, leading to unwanted risk. The issue however perhaps bears down more heavily on index providers, as they generally follow constituent eligibility rules that remove from their indices a suspended company that’s remained suspended for more than a month or so, at a price of zero. This is done in the face of evidence (from most other markets) that a company suspended for a longer period is unlikely to return to the market, meaning that it is appropriate for the index to remove the company, even though that crystallises a loss for those passively-managed products tracking their indices. If the company does however return to the market, as many of these A-Shares do, tracking funds will book an unearned outperformance relative to the index, as they now own shares that have a value, despite having been removed from the index at zero. A resolution is unclear. The index provider could increase the required suspension period before removing a company, but that would have to be China-specific to avoid damaging the rule’s usefulness elsewhere. One provider, MSCI, has instituted a rule whereby a Chinese company that has had a suspension period of more than 50 days is ineligible for their indices. This should act as a deterrent, but in the view of our clients, may not have much of an impact upon the actions of the companies. If however the likelihood of a company that’s suspended itself once doing so again is significantly higher than the likelihood of any other company announcing a suspension, then slowly the “suspension effect” will reduce in the index, at the cost of removing a proportion of the A-Share market from eligibility, i.e. making the index less representative of the overall opportunity set.
Helpfully, the Shanghai Exchange has stated its intention to clamp down on the practice. But until they do so, and its efficacy is certain, the major index providers are in the uncomfortable situation of having announced the inclusion of A-shares in their broad global indices, while a notable A-share specific problem remains extant. 15 September 2018