General Benchmarks
Benchmark: A benchmark is an index used in a financial product to determine amounts payable under the contract, the value of a product or to measure performance.
Benchmark administrator: A person that is responsible for the provision of a benchmark. In broad terms, this involves the creation of a benchmark on the basis of underlying data, for example as provided by benchmark contributors.
BMR/EU BMR: Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds. The ‘EU BMR’ refers to the EU version of the Benchmarks Regulation. The ‘BMR’ is the Benchmarks Regulation as it has effect in the UK after IP completion day. This is the UK’s domestic regulatory framework for indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (see BMR and EU BMR ).
Critical benchmark: A benchmark that is used in a significant volume of transactions, for which appropriate substitutes are lacking, and where discontinuation of the benchmark is likely to have a severe adverse impact. The BMR includes a number of tests for establishing where a benchmark is "critical".
Derivatives markets: A general term used to describe the activities of persons involved in creating and trading complex financial products called derivatives (see the definition of derivatives above). Derivatives may refer to specific benchmarks, such as LIBOR.
EURIBOR: Euro Interbank Offered Rate.
Fixed income products: A general term for categories of financial products that pay a fixed return. Bonds are generally referred to as fixed income products, as a bondholder under a traditional bond is entitled to fixed, periodic interest payments under the bond.
IBA: ICE Benchmark Administration Limited
IBORs: Refers to LIBOR, EURIBOR and TIBOR and other Interbank Offered Rates. These are widely used in the global financial system as benchmarks for a large volume and broad range of financial products and contracts.
LIBOR: A benchmark which seeks to measure the average costs at which banks can borrow from the unsecured wholesale lending market. It is produced by IBA and is calculated based on submissions that are made to IBA each day by a number of major global banks (the "panel banks").
Money market instruments: A category of financial instrument, typically debt securities, such as treasury bills and commercial paper, which have a short-term maturity period. The maturity period ends on the maturity date, which is the date when the principal amount under the instrument is due to the investor, and when interest payments under the instrument cease to be payable.
Panel bank: A term used to characterise a group of banks that contribute, or have contributed, data used to calculate benchmarks.
Risk-free rate: Risk-free rates are rates that are generally based on overnight deposits. Global regulators have proposed that risk free rates should be used as alternative rates to LIBOR. A proposed risk-free replacement rate for LIBOR has been identified by regulators in each currency for which LIBOR is published.
Structured products: A type of investment product where the interest paid out on the instrument is dependent on the performance of something else, such as a particular share or stock market index.
Supervised entities: A particular type of entity that is required to comply with certain rules under the BMR when using a benchmark. Generally speaking, this refers to regulated entities (i.e. firms authorised to carry on financial services activities).
TIBOR: Tokyo Interbank Offered Rate.
Tough legacy contracts: Contracts, particularly in cash markets (i.e. loans, securitisations, mortgages and commercial contracts), which genuinely have either no or inappropriate alternatives and face insurmountable barriers to moving off LIBOR.
UK Benchmarks Register: A public record of benchmark administrators and third country benchmarks which are compliant with the Benchmarks Regulation and have successfully applied to the FCA.