Benchmarks, Indices, and Market Abuse Directive (MAD)
In September 2013, the European Commission proposed a Regulation for Financial Benchmarks and Indices. The integrity of benchmarks is critical to the pricing of many financial instruments, such as interest rate swaps, and commercial and non-commercial contracts, such as loans and mortgages, and risk management. Any risk of manipulation of benchmarks may undermine market confidence, cause significant losses to investors and distort the real economy. Political negotiations to finalize the legislation are ongoing.
Confidence in financial and commodities markets is fundamental for the development of the economy; market integrity needs to be guaranteed. The MAD introduced a framework harmonizing core concepts and rules on information disclosure and market abuse. A revised MAD is now to be implemented during 2016 and will include:Ensuring Regulation Keeps Pace With Market Developments
- Extended scope of the market abuse framework to apply to any financial instrument admitted to trading
- Abusive strategies using highly automated trading methods are also specifically identified.
- These measures address the challenges of market surveillance in an increasingly fragmented and highly automated trading environment and ensures investor protection and market integrity on a level playing field in the whole EU.
- Better targets the scope of MAD to commodity derivatives markets by an improved definition of inside information in relation to commodity derivatives and by capturing cross-market manipulation between spot and derivatives. This will ensure legal certainty and better information for investors.
- Better cooperation between regulators of financial and commodity markets to ensure a consolidated overview and to detect and sanction cross-market and cross-border abuses.
- Harmonized sanctioning powers of national regulators across the EU.
- It also gives regulators power to gather more information and data , such as existing telephone and data traffic records from telecoms operators where there is a reasonable suspicion of insider dealing or market manipulation.
- A new offence of "attempted market manipulation" is introduced to make it possible for regulators to impose a sanction in cases where someone tries to manipulate the market but does not succeed in actually trading.
- The new trading venue ‘SME Growth Market’ proposed in the new MiFID II opens up for calibrated and/or clarifying disclosure requirements for SMEs listed on these markets while at the same time extending the requirements for strong surveillance to these markets. Better integrity in SME markets has the potential of improving access to finance for smaller companies, thus unleashing an enormous potential for growth and job creation.