Version 1.0 November 17, 2016
Effective January 1, 2017, Nasdaq will administer the Nasdaq proprietary indexes (the “Nasdaq Proprietary Indexes”) in compliance with the International Organisation of Securities Commissions’ (“IOSCO”) Principles for Financial Benchmarks (“IOSCO Principles”).
The objective of the IOSCO Principles is to create an overarching regulatory framework for benchmarks used in global financial markets. The IOSCO Principles include a set of requirements for the methodology, transparency, and overall quality of benchmarks, as well as the overall governance arrangements and accountability for index providers and other relevant bodies. All IOSCO Principles applicable to the Nasdaq Proprietary Indexes are included in this Policy Statement.
Nasdaq calculates more than 40,000 diverse indexes, providing coverage across asset classes, countries and sectors. Nasdaq’s rules-based, objective methodology teamed with its award-winning technology set Nasdaq apart from other index providers. A public list of all Nasdaq Proprietary Indexes is provided on the Nasdaq website at https://indexes.nasdaqomx.com/.
Nasdaq seeks to apply the IOSCO Principles in a proportionate manner, which means that Nasdaq shall take into account a variety of factors including, but not limited to:
- The nature of the different types of benchmarks administered;
- An assessment of the size of the market in products linked to these benchmarks and the size and risks posed by each benchmark;
- The number of users for each benchmark;
- The sources of data used for a benchmark; and
- The level of discretion and the potential conflicts of interest.
As a self-regulatory organization (“SRO”), Nasdaq has special and public interest and investor protection responsibilities that are applicable to all aspects of its operations. SROs are required by law to protect investors and the public interest, ensure the maintenance of fair and honest markets, prevent fraud and manipulation and remove barriers to free and open markets, not permit unfair discrimination between customers, issuers, brokers, and dealers, and take necessary steps to ensure compliance with federal laws and SRO rules.
Moreover, Nasdaq has existing corporate policies applicable to Nasdaq, its wholly owned subsidiaries, as well as consultants, contractors and others who work on behalf of Nasdaq, including but not limited to the following:
- Global Code of Ethics
- International Business Conduct Policy
- Global Trading Policy
- Public Disclosure Policy
- Anti-Trust and Unfair Trade Practices Policy
- Employee Handbook, as applicable by country
- Policy on Responsibility of a Self-Regulatory Organization
||How Nasdaq complies with the Principle
|1. Overall responsibility of the administrator
||Nasdaq retains primary responsibility for all stages of the benchmark determination process of the Nasdaq Proprietary Indexes whether such aspects are handled by Nasdaq itself or a third party. This includes:
|2. Oversight over third parties
Nasdaq oversees all aspects of the benchmark determination process for the Nasdaq Proprietary Indexes and maintains documented QA, due diligence and/or monitoring procedures with respect to its vendors and partners (including data providers and calculation agents) in accordance with the following:
Software and Technology Infrastructure Suppliers. Nasdaq shall seek to ensure that for each software or technology infrastructure supplier: (i) the parties have entered into a legal agreement governing each party’s respective obligations and roles; (ii) service quality and review meetings are conducted as required; and (iii) such suppliers are not involved in the benchmark determination process.
Data Suppliers. Nasdaq shall seek to ensure that for each data supplier: (i) the parties have entered into a legal agreement governing each party’s respective obligations and roles; (ii) due diligence is conducted prior to entering into the applicable agreement and each agreement is reviewed by appropriate Nasdaq stakeholders to ensure license rights and restrictions are acceptable; (iii) where applicable and commercially reasonable, data is sourced from a range of providers to minimize operational risk and a dependency on a single source; and (iv) data provision services are monitored and service quality and review meetings are conducted if required.
Benchmark Determination Partners. For each benchmark determination partner which may include calculation agents and partners who contribute to the design and/or determination of the benchmark, Nasdaq shall seek to ensure the parties have entered into a legal agreement governing each party’s respective obligations and roles which may include the scope of processes, service delivery and escalation contacts. Where feasible Nasdaq endeavours to engage partners that ascrive to the IOSCO principles.
|3. Conflicts of interest for administrators
Nasdaq publishes a methodology document for the Nasdaq Proprietary Indexes that provides information sufficient for a Stakeholder to understand the objective of the benchmark, the calculation process for the benchmark and various other aspects necessary for a Stakeholder to understand the benchmark determination process. In Nasdaq’s view, the most important criteria for consideration of a benchmark by a Stakeholder are the methodologies. Nasdaq follows each published methodologies and does not have discretion in any such benchmark determinations. As such, there are no existing or potential conflicts of interest that would inappropriately influence a benchmark determination.
Further, Nasdaq has implemented a conflicts of interest framework that includes the following policies:
Global Code of Ethics. The Global Code of Ethics requires all Nasdaq employees to avoid or disclose all potential conflicts of interest and prohibits Nasdaq employees from using confidential and proprietary information for personal or non-job related purposes.
Public Disclosure Policy. The Public Disclosure Policy requires simultaneous public disclosure of material non-public information that is intentionally disclosed to a shareholder, analyst or other market participant to whom disclosure is subject to Regulation Fair Disclosure (“Regulation FD”) and prompt public disclosure of material non-public information that was not intentionally disclosed, as defined under Regulation FD.
Global Trading Policy. The Global Trading Policy requires Nasdaq employees, their spouses and children, and other closely affiliated persons as defined in the Global Trading Policy to annually confirm their compliance with the trading rules contained in the Global Trading Policy.
|4. Control framework for administrators
Nasdaq has a formalized internal control framework in place which substantially covers all stages of administration for the Nasdaq Proprietary Indexes. The internal control framework also aligns with IOSCO Principle 3 which is described in Nasdaq’s response thereto.
Additionally, Nasdaq employees must report improper and/or suspicious conduct, concerns relating to accounting, internal controls, and auditing issues, and potential rule violations. Employees may do so through an anonymous whistle-blower hotline or internally through Nasdaq’s intranet. The whistle-blower process is subject to review and supervision by the Audit Committee of the Nasdaq Board of Directors.
|5. Internal oversight
The Nasdaq Proprietary Indexes are based upon and administered in accordance with the criteria in the published methodology which use, among other data points, regulated market or exchange based inputs. The Nasdaq Proprietary Indexes are maintained on an ongoing basis through Nasdaq’s internal control processes.
The Nasdaq internal control process includes oversight by: (i) the Nasdaq Index Advisory Council, composed of internal and external members that advises Nasdaq on emerging issues relating to index administration, composition, and dissemination; (ii) the Nasdaq Board of Directors; and (iii) the Nasdaq Audit Committee.
As part of the internal control process, Nasdaq will create an internal Nasdaq governance process to ensure all new Nasdaq Proprietary Index methodologies and enhancements to existing Nasdaq Proprietary Index methodologies comply with the IOSCO Principles. Nasdaq shall also form the Nasdaq Index Governance Board which will be composed of individuals from Nasdaq’s senior operations, technical, research, and legal staff. The Nasdaq Index Governance Board annual meetings will be formally minuted and relevant decisions and concerns will be included in its report to the Nasdaq Board of Directors. The Nasdaq Index Governance Board will also receive input from the Nasdaq Index Advisory Council.
|6. Benchmark design
||Nasdaq Proprietary Indexes have clear and accessible index designs that utilize a criteria based methodology which provides for an accurate and reliable representation of economic reality, in compliance with the IOSCO Principles. Moreover, each such methodology details the security selection criteria.
|7. Data sufficiency
||Nasdaq uses a disciplined approach when determining the relevant data for its benchmarks and each is subject to the published criteria-based methodology that may use, among other data points, regulated market or exchange based inputs. The sufficiency of data is assessed and evaluated by relevant stakeholders within Nasdaq. Additionally, Nasdaq uses observable market data for the benchmarks when available. All data sufficiency provisions are clearly outlined in the methodologies that are available on the Nasdaq website.
|8. Hierarchy of data inputs
The hierarchy of data inputs vary by Nasdaq Proprietary Index. Each is described in the applicable published methodology. All data inputs are anchored in actual market activity or transactions in accordance with the following: (i) equity and commodity benchmarks use transactions pricing; and (ii) for currency and fixed income benchmarks use evaluated pricing.
Where a market price or data derived from market price behaviour can be used, Nasdaq will seek to use such data to calculate the applicable Nasdaq Proprietary Index. In instances where other data inputs are utilized, including derived or judgment based created data, Nasdaq will derive such data from sources it reasonably believes to be objective and to help fulfil the objectives of the applicable Nasdaq Proprietary Index.
|9. Transparency of benchmark determinations
For each Nasdaq Proprietary Index, Nasdaq publishes a methodology that provides information sufficient for a Stakeholder to understand the objective, the calculation process and various other aspects necessary for the Stakeholder to understand the Index determination process.
Each published methodology includes a concise explanation of the extent to which and the basis upon which Expert Judgment, if any, is used to establish and maintain the Nasdaq Proprietary Index determination as well as the guidelines, procedures and/or practices that control the exercise and promote consistency in the exercise of Expert Judgment.
Additionally, Index-related information is also announced periodically through Nasdaq’s Global Index Watch, available at http://indexes.nasdaqomx.com.
|10. Periodic review
Nasdaq reviews each Nasdaq Proprietary Index composition on a periodic basis; provided that under certain circumstances including corporate actions, such as stock splits, reverse stock splits, and dividends, Nasdaq may conduct an interim review and update of the Index.
Each Nasdaq Proprietary Index is governed by the publicly available methodology which outlines the handling of all corporate actions and reviews. Additionally and as published within each methodology, Nasdaq may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure index integrity.
Any such change to a Nasdaq Proprietary Index is published through the Nasdaq Global Index Watch available at http://indexes.nasdaqomx.com.
|11. Content of the methodology
Nasdaq publishes the methodology for the Nasdaq Proprietary Indexes on its website. Nasdaq endeavours to provide sufficient information for Stakeholder and/or Market Participants to understand the applicable methodology and the objective and determination process of the Nasdaq Proprietary Index so that all Stakeholders and Market Participants can determine for themselves whether the applicable index is appropriate and meets their needs.
Nasdaq believes that each published methodology provides a clear explanation of such methodology and the objective of the applicable Nasdaq Proprietary Index and may address one or more of the items set forth in IOSCO Principle 11. The methodologies do not address all items set forth in IOSCO Principle 11 as further detailed below.
Nasdaq believes that by publishing the methodologies, Stakeholders and Market Participants, particularly those bearing the risk associated with the use of a particular Nasdaq Proprietary Index in a particular market, are typically well positioned to decide which index suits their needs. As detailed in its license agreements for the Nasdaq Proprietary Indexes, Nasdaq does not take the suitability of a Stakeholder or Market Participant into account when maintaining the applicable index.
Nasdaq further believes that the rationale for each methodology design is to attain the objective and accurately measure the underlying interest in the applicable Nasdaq Proprietary Index. By describing the objective, the rationale for Nasdaq’s adoption of the applicable methodology is made clear.
While Nasdaq may not explain how a particular Nasdaq Proprietary Index is developed, it does include the calculation formula, the objective and other various factors. For each Nasdaq Proprietary Index, Nasdaq describes the overall characteristics of the constituents, but not the individual attributes (nor constituent level data). Further, Nasdaq may not include the policy and procedures. Nasdaq believes that the publicly available methodology results and outputs should be evaluated on their own merit.
Nasdaq endeavours to provide information sufficient for Market Participants to understand the methodology, objective and determination process for each of the Nasdaq Proprietary Indexes so that the Market Participant who bears the risk associated with the use of a particular index, can determine for themselves the limitations and suitability of such index and decide which index best suits their needs. It is the responsibility of the Stakeholder and Market Participants to evaluate the potential limitation of each Nasdaq Proprietary Index against their needs and desired outcome. Nasdaq does not determine the suitability of any Nasdaq Proprietary Index for any investor.
|12. Changes to the methodology
||Through Nasdaq’s Global Index Watch, Nasdaq announces any material changes to the methodology of an index and when such changes shall be effective.
Nasdaq maintains an internal review and approval process for termination of any Nasdaq Proprietary Index. By publishing the methodology, Stakeholder and Market Participants, particularly those bearing risk associated with the use of a particular Nasdaq Proprietary Index in a particular market, are well positioned to decide which index best suits their needs and what fall back provisions are necessary in the event Nasdaq decides to materially change or terminate an applicable index. The responsibility herein rests solely with the issuers of the contracts or financial instruments leveraging the Nasdaq Proprietary Index.
Nasdaq includes termination provision in all its license agreements that puts the licensee on notice that Nasdaq may cease publishing the applicable index during the term and, in such an event, Nasdaq provides such licensees with sufficient notice. Nasdaq also considers requests to extend the wind down period for any terminated Nasdaq Proprietary Index. Additionally, Given the highly competitive market, in the event of termination, licensee frequently have various choices for alternative existing benchmarks Nasdaq provides notification of any termination of a Nasdaq Proprietary Index through its Financial Product News.
|14. Submitter code of content
||Based on the proportionality principle of the IOSCO Principles and the types of data utilized by Nasdaq Proprietary Indexes, regulated market and exchange based inputs as published in the publicly available methodologies, Nasdaq does not deem implementation of a Submitted Code of Conduct necessary at this time.
|15. Internal controls over data collection
||In accordance with Nasdaq’s statement under Principle 4 and Principle 5, Nasdaq maintains a robust operational infrastructure that manages the risks associated with the maintenance, production and operation of the Nasdaq Proprietary Indexes.
|16. Complaints procedure
||Customers, stakeholders, and the public may register inquiries or complaints to Nasdaq by contacting email@example.com.
||In addition to internal controls, Nasdaq’s internal audit group shall perform a routine review regarding Nasdaq’s compliance with the IOSCO Principles. Following each such routine review, the Nasdaq Index Governance Board shall consider the detailed findings of the review and, when remedial measures are necessary or appropriate, will oversee implementation of those measures to address the findings. All such remedial measures shall be reported to the Nasdaq Board of Directors.
|18. Audit trail
||For the Nasdaq Proprietary Indexes, Nasdaq shall retain records on each of the items listed in Principle 18 as applicable. Notwithstanding the above, Nasdaq does not maintain data queries and responses to data inputs as Nasdaq is in frequent contact with each of its data licensors and retaining such records on all queries and responses would be overly burdensome given the volume and not necessary or efficient for administration of the Nasdaq Proprietary Indexes.
|19. Cooperation with regulatory authorities
||Nasdaq does and continues to cooperate with regulators with authority over Nasdaq as required by law in carrying out their duties, including with appropriate enquiries and investigations; provided that any disclosure of confidential or sensitive information shall be subject to any applicable legal or regulatory restrictions, rights or obligations.|