STOXX Ltd.

Response to Public Consultation by the IOSCO on Principles for Financial Benchmarks

Zurich, May 16, 2013

STOXX Limited Selnaustrasse 30 8021 Zurich Switzerland

STOXX RESPONSE: IOSCO CONSULTATION ON PRINCIPLES FOR FINANCIAL BENCHMARKS STOXX is pleased to have the opportunity to submit comments to the IOSCO in response to their “Principles for Financial Benchmarks - Consultation Report” (CR 04/2013). STOXX Limited is an established index specialist with a European heritage. The launch of the first STOXX® indices in 1998, including the EURO STOXX 50® index, marked the beginning of the STOXX business activities. Since that time, STOXX has been continuously expanding its portfolio of indices, and now operates on a global level, across all asset classes. STOXX Limited is committed to delivering its high-quality, reliable and trusted index offerings to its global client base. Our indices are licensed to the world's largest issuers of financial products, capital owners and asset managers as well as to more than 400 companies around the world, and are used not only as underlyings for financial products such as exchange-traded funds (ETFs), futures and options, and structured products, but also for risk and performance measurement. Considering the alleged manipulation of LIBOR we support initiatives that address concerns about submissionbased or in broader context subjective indices (like panel-based indices which are prone to conflict of interests) and welcome policy orientations and the potential implementation of standards to guide these specific activities. We support IOSCO and its global approach in order to identify the necessary safeguards and framework for the provision of indices. However, the principles should well reflect and be balanced between submission-based and objective indices, which use a clear transparent methodology and pricing from regulated markets. For the latter we argue – as in our response to your first consultation on the topic – that they do not require the envisioned regulation due to their specific design and transparency as they already by definition follow highest standards. Equity indices from neutral index providers fall into this category. On the contrary we strongly support the development of clear guidelines for submission based indices or broader: subjective indices.

We would also welcome the opportunity to discuss the content of our submission with you further. Should you require any additional information in the meantime, please contact: Dr. Hartmut Graf; CEO; STOXX Ltd.; Selnaustrasse 30; 8021 Zurich; Switzerland; [email protected]. We are happy for our comments to be made public.

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Contents 1. GENERAL COMMENTS AND INTRODUCTION

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1.1. DEFINITIONS AND GENERAL VIEWS

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1.2. RELEVANCE OF THE EXISTING LEGAL FRAMEWORK

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2. SPECIFIC ANSWERS TO QUESTIONS

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1. GENERAL COMMENTS AND INTRODUCTION STOXX regards favorably the initial distinctions made in the IOSCO principles in the second consultation between general and submission related Benchmarks. In our analysis we identified three views on the principles: » Some principles strengthen the robustness and integrity of financial indices especially if applied to panel based indices » However, we came across principles that require further elaboration as they have been defined too broadly » Certain crucial aspects like conflicts of interest arising from specific ownership structures where the product issuer, trading desks and Benchmark Administrator are within the same entity require more attention. It is helpful that a distinction has been made into Benchmarks that apply transaction based data and Benchmarks that use panel based data. However, we also see a need for a clear distinction between the Administrators, Calculation Agents, Data Providers and Users, as splitting these relationships is central to managing conflicts of interest properly. Addressing conflicts of interest is one of IOSCO’s stated objectives for these principles.

1.1. DEFINITIONS AND GENERAL VIEWS Definition of Key terms For various key terms used throughout the consultation as well as our response we would like to provide clarifications for the definitions as well as reasons for these suggestions. We note that throughout the different current discussions the terms “indices” and “benchmarks” are being used with a specific definition. From our point of view we would like to emphasize that a more consistent and granular set of definitions as outlined below would help overall clarity. We therefore restate our initial proposal for the definition of these terms as follows: An index is an aggregation of market data of financial instruments or acquirable assets which are used either as a basis for financial products (“underlying”) or to evaluate financial investments (“benchmark”). Please note that our definition is broadly similar to the definition of “Benchmarks” as drafted by IOSCO. The key element of our definition is the foundation of indices on either market data of financial instruments or acquirable assets. This relationship allows the index to be fully replicated by directly investing in the respective financial instruments or acquirable assets. Thus, only those concepts where full direct replication is possible qualify as an index. The second constitutive element of indices is their usage in the financial services industry. Again, we consider as indices only those statistical figures composed of market data, which are used for the specific purposes of being an underlying or a benchmark. Thus, we deviate from the IOSCO wording for the following reasons: » Aggregations of market data are used for a broader range of purposes. Any principles or policy making should be clear about whether they are addressing the use of indices in general or specific types of use only. To establish clarity we segregate indices into the two main areas of use, namely as underlyings and for benchmarking. » As both “benchmarking” and “underlyings” are commonly applied terms for very specific types of usage, we establish “index” as the master term. » In addition, a figure only qualifies as an index if the building blocks of this index (the index components) are in principle acquirable financial instruments or assets. Pure numerical and statistical figures do not therefore qualify as an index. » Pure macroeconomic indicators are not part of our definition of indices/ benchmarks and should therefore not be subject to regulation in this context. A detailed set of arguments had already been provided in our re1 sponse document on the first consultation of IOSCO . 1

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STOXX RESPONSE: IOSCO CONSULTATION ON PRINCIPLES FOR FINANCIAL BENCHMARKS Benchmarks differ widely depending on their principles of construction, maintenance and objectivity. As a result indices can be broken down into two distinct categories: objective and subjective indices. Objective Indices fulfill a clear set of criteria, i.e. possibility of full replication, high quality data usage, adequate methodology, inherent integrity, continuous quality controls, high availability and appropriate governance, and need no additional regulatory oversight. Indices which do not fulfill at least one of these criteria above are categorized as Subjective Indices, a subcategory of which are submission-based indices. However, to facilitate your consideration of our response, we have applied the proposed IOSCO definitions consistently (and where unambiguous) throughout our response. The current framework assigns a significant amount of responsibility to the Benchmark Administrator. It defines the Benchmark Administrator as the responsible entity for the Benchmark Administration process. However, the current industry practice has certain examples, where the various tasks of the Benchmark Administrator – e.g. calculation, methodology adjustments and dissemination – are performed by different entities. As a consequence it is unclear who in this case the Benchmark Administrator would be.

This situation is worsened by decoupling the Benchmark Administrator from the intellectual property of the indices. We would instead argue strongly, that the Benchmark Administrator should be defined as the party owning the intellectual property of the indices.

Different types of Index Providers We separate providers into neutral and non-neutral index providers. Neutral providers are separate organizational units with the primary objective of developing, calculating, maintaining and marketing indices for profit to third parties. In particular they are independent from market participants who trade index related products or invest into index related products, do not hold active trading positions themselves and thus do not benefit from certain index levels. On the other hand, non-neutral providers: » predominantly provide indices for use by organizationally-related units or in-house issuers and traders of products which benefit economically from the level of the indices, or » predominantly calculate and maintain indices on behalf of one specific market participant only. The main criteria distinguishing between the two groups are that the neutral index providers generate income from licensing their indices and do not benefit from the index level of the indices they provide by trading or selling financial products on these indices. For the avoidance of doubt, infrastructure providers who only enable trading or investing by providing technical platforms have no economic relationship to the index performance and are therefore not included in the definition of the market participants above. We see on the contrary a very strong conflict of interest for parties being Benchmark Providers and simultaneously also parties trading, issuing and marketing financial products related to those indices. Any requirement to publish these potential conflicts might be insufficient and significant risks remain.

1.2. RELEVANCE OF THE EXISTING LEGAL FRAMEWORK Index Administrators and their data providers (i.e. sources of data for the purpose of index calculations) do not operate in an unregulated environment today. Firstly, there is vertical, product specific regulation such as the

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STOXX RESPONSE: IOSCO CONSULTATION ON PRINCIPLES FOR FINANCIAL BENCHMARKS EU’s UCITS regulations which require entirely rule-based indices. Secondly, there is upcoming horizontal regulation in the area of manipulation of benchmarks in connection with the proposal for a revised EU market abuse regulation. Finally, Index Administrators have multiple intellectual property rights which need to be considered in this context as well. This includes, but is not limited to copyrights, data base protection rights, trademark rights, etc. The European Commission and also the G8 governments have put much effort into promoting their knowledge-based economies through strengthening intellectual property rights (see for example the respective G8 statement at http://www.whitehouse.gov/the-press-office/2012/05/19/statement-g-8-leaders-global-economy).

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2. SPECIFIC ANSWERS TO QUESTIONS

Question 1. Equity indices: Indices may be used to measure a wide range of underlying Interests, using a variety of calculation methodologies and inputs. In the specific case of equity indices, inputs are typically based on transactions concluded on Regulated Markets. In light of this: are there any principles or parts of the principles that cannot, or should not, be applied to equity indices? If so, please identify these principles and explain why their application is inappropriate.

Governance 1. Overall Responsibility of the Administrator

2. Oversight of Third Parties

Answer General comment: It would be useful not to restrict this to equity indices, but to include all index types that use transactions concluded on Regulated Markets. For example there are venues available for fixed income and reference rates which are regulated markets. We had provided in our answer to the initial consultation a more broad and generic split into objective and subjec2 tive indices.

The overall responsibility of the Benchmark Administrator could only be accepted and would only be meaningful if the definition is adjusted as outlined in our introduction above (the Benchmark Administrator should be defined as the party owning the intellectual property of the indices). Otherwise, as the Benchmark Administrator might not be in control of all specific elements of the Benchmark Administration process, there might be ambiguity about the ultimate responsibility, something this proposal for regulation is trying to avoid. As argued above, the responsibility for the indices should be assigned unambiguously to the party owning the intellectual property of the index. By doing so, consequentially, the ownership of the methodologies (i.e. the Benchmark Determination) resides with this party only. We regard it as wholly acceptable to make public, who (under the mentioned required redefinition) the Benchmark Administrator is. We would argue however, that making public all potential subcontractors – e.g. for calculation or dissemination would not provide added value. Instead, we would more be concerned that any publication may impact the competitive environment. We would therefore propose to delete in section c) the expression “to Stakeholders and” and thereby limiting transparency requirement to regulatory authorities only.

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Answer The relevant regulatory framework should not substantially change the overall dynamics of competition. We would therefore argue that section d) should be amended stating: “Take commercially reasonable steps, including contingency plans…”

3. Conflicts of Interest for Administrators

We regard the guidelines as insufficient to avoid conflicts of interest and as one-sided and would like to suggest the following adjustments: There are in principle two levels where conflicts of interest may occur, (a) within the Benchmark Administration process or (b) between the Benchmark Administrator and users of Benchmarks. As we have outlined in detail, the main reason for the LIBOR scandal had been a conflict of interest of the latter case, where Benchmark Administration and usage of the Benchmark had been too closely interlinked. However, the majority of the guidelines proposed here had been addressing the conflict of interests within Benchmark Administrators. Also, as outlined in the introduction, at least neutral index providers had managed in the recent decades to avoid conflict of interests in their own business interest. We would therefore suggest reducing the guidelines of section 3 about “conflict of interests” to submission-based indices prone to conflict of interest only. In addition, we would like to suggest you undertake a critical review of potentially restrictions on Benchmark Administration where the same organization is active in issuing, marketing, trading and selling products related to the Benchmarks.

For completeness, we would like to point out that any such restriction should of course not apply to organizations which only provide an appropriate infrastructure for the trading of such products. 4. Control Framework for Administrators

For many years the combination of neutral index providers and objective indices has not produced frictions in the market place and would thus give no reason to formalize the Benchmark Determination process for objective equity indices. Formalization may lead to inflexibility, slowing down innovation and causing inefficiency and cost increases. A formalized standard setting is also prone to misuse by competitors due to the sensitivity and

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Answer confidentiality associated with in-house processes and proprietary information. We therefore argue that the control framework should apply to submission-based indices prone to conflict of interest only. As regards due diligence on input sources, this is particularly necessary for panel based indices prone to conflict of interest, but practically impossible for equity index providers which use prices from global regulated markets: Due diligence carried out by Benchmark Administrators on such markets would most likely be rejected by a majority of the market participants, and therefore making it virtually impossible for equity index providers to comply with the guidelines. Especially due diligence on input sources should be restricted to submission-based indices prone to conflict of interest. The broad client base of neutral index providers creates an unparalleled cross-check of indices: Due to the widespread replication of the indices many different market participants recalculate them and provide a broad research about them. This leaves no room for manipulation of objective indices. We therefore argue that neutral index providers do not need to install a whistle blowing mechanism.

5. Internal Oversight

Neutral index providers have installed – in their own interest – a wide range of advisory committees to collect adequate feedback from the market participants and stakeholders and to enhance scrutiny. However, we do not agree with the necessity for an oversight committee for equity indices / objective indices as outlined in the current draft and would limit such an oversight function to submission-based indices for the following reasons: » We strongly believe in the concept of having one ultimately responsible party with full accountability. The tasks and roles of the proposed oversight function in the IOSCO consultation document might result in some of the Benchmark Administrator’s accountability being transferred to a committee. This results in some gray areas of unclear responsibility something the current regulatory approach tries to avoid. » In reality either the relevant experts under consideration are exposed to the markets or their

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Answer overall contribution might be theoretical only. For this reason we believe that there might always be at least a potential conflict of interest for all members of the oversight function. By assigning advisory power only (rather than oversight) to the committee these conflicts of interest might at least be partially mitigated. » It is somewhat advantageous to have confidentiality towards the public about the individual members of the advisory boards as this limits the potential external influence on them. For example, Deutsche Börse only publishes the name of the bank or asset manager that is delegating members to the advisory board but not the individual names. As long as these set-ups function no “one-size-fits-all” approach should be rolled out and strict oversight should be applied to submission-based indices only. » Certain modern concepts have rather specific methodologies – it might be complicated to find a broader range of experts with deep enough skills. On the other hand neutral index providers operate usually several thousand indices and so a certain bundling might be necessary. This tension between having broader bundles of indices and limited experts available requires voluntary advisory boards, where the members are supposed to contribute according to their best knowledge rather than being allocated oversight over subjects of which they might only have limited expertise. » If the oversight functions come with a certain obligation it would be more complicated to find – as currently is the usual industry practice – voluntary members. Potential compensation as a mitigation might actually contradict the overall interest of having an independent advice. We therefore argue that the oversight function as drafted should be mandatory for submission based indices only. In addition, we would like to suggest making advisory committees mandatory for all index providers, but disagree with passing oversight functions to these committees: Clear, single-point responsibility should reside with the Benchmark Administrator only (and not partially with an external oversight function) because it would not be possible to find members free of any conflicts of interest for the oversight function with sufficient skills and experience in all cases. History proves that the governance of neutral equity index providers is sufficient to ensure ob-

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Quality of the Benchmark 6. Benchmark Design

Answer jective and reliable index calculation for objective indices. One of the main reasons here is the indirect continuous “oversight” and control of the indices by their wide range of clients (all also following different individual interests). Competitiveness requires flexibility to adjustments as otherwise clients will take alternative providers. We have already argued, that Benchmark Administrators should not simultaneously offer their own tradable products related to their own indices or trade the corresponding products. If oversight should take place, than exactly for those groups being exposed to potential conflict of interests.

We agree that there are potentially certain best practice elements to be considered for the design of a particular benchmark. However, for specific cases there might be certain limitations and consequentially some of the best practice elements might explicitly not be considered: Examples are so called strategy indices where they aim to focus on smaller or niche market segments. For certain markets some of the required information is also not publicly available and therefore could not be considered in the Benchmark Design. An example is market concentration in trading, where input data from exchanges or other regulated markets usually is not publicly available. We would therefore suggest rephrasing this paragraph. Instead of “requirements” we suggest the term “recommendations for best practice design”. One may in addition extend the recommendations to our detailed list of categories relevant for objective indices (which comply with the highest 3 standards) .

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7. Data Sufficiency 8. Hierarchy of Data Inputs

n/a This does not apply for equity indices which are based on one data type only which is transactional data.

9. Periodic Review Quality of the Methodology 10. Content of the Methodology

n/a We would like to argue that all the requirements are already fulfilled by neutral index providers. It is in their own interest to create with their clients a full understanding of the methodology.

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Answer Section 10 should therefore be restricted entirely to submission-based indices prone to conflict of interest only. In addition, we would like to draw a very clear line between the Benchmark Administrators and issuers of financial products distributing their products to end investors: The issuer of financial products should remain fully responsible for any offering of the corresponding products, even if it is based on Benchmarks, as it is their own discretionary decision to select the corresponding Benchmark. Benchmark Administrators should therefore not be held accountable for the inappropriate use of their Benchmarks in financial products. We would therefore argue to delete paragraph f).

11. Changes to the Methodology

Even the most well-known indices need to undergo from time to time changes in order to better reflect the markets. One example easy to understand was the change from unconstrained market capitalization weighting of equity indices to free float market capitalization, which is the current standard. We would like to argue that those changes partially require consultation also in a confidential environment (e.g. in the above mentioned advisory board). Only such a procedure prevents speculation in the market about the potential outcome of a certain methodology adjustment. There are also potential changes with less clear outcomes which may require consultations with a broader scope. Neutral index providers had managed in the past very well to balance the different interests. This is based mainly on their need to serve their entire client base across all different groups. They had done well in selecting whether to do a consultation publicly or not. Thus, we would like to argue that the guidelines for the changes in methodology should act as a best practice for neutral index providers only. They should be mandatory for submission-based benchmarks prone to conflict of interest only.

12. Transition

The market for equity indices is fully competitive. The intensive competition among equity index providers and the low costs of changing equity benchmarks make it simple to move away from one Benchmark to another if the original Bench-

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Answer mark is no longer of interest or applicable for the market needs. We would therefore like to suggest restricting paragraph 12 to submission based benchmarks prone to conflict of interest.

13. Submitter Code of Conduct 14. Internal Controls over Data Collection Accountability 15. Complaints Procedures

n/a n/a The market for equity indices is fully competitive. It is therefore in the core interest of neutral index providers with a broad client base to offer indices and customer services which best suit the market, as otherwise clients will change their benchmarks (which is not a regular action, but happen from time to time). From time to time amendments to the methodology are necessary – even if indices are fully rulebased – because the markets have been developing new characteristics. In these rare instances neutral index providers always try to act in a way, which minimizes the impact on all market participants. This is in their own economic interest; otherwise clients will change their benchmarks. However, discretionary decisions always come with potential positive and negative impact on different individual market participants. Thus any decision will come along with potential complaints. A formalized procedure increases the administrative costs without a real benefit for the market. We regard the forces of a fully competitive market sufficient for these reasons and therefore would like to propose a restriction of paragraph 15 to submission based indices prone to conflict of interest only.

16. Audits

Effective global competition enforces high scrutiny for superior standards in product related governance and operations. Therefore external audits for equity indices are not necessary and paragraph 16 should be restricted to submission-based prone to conflict of interest indices. For clarification full transparency applies towards regulatory authorities and paying customers. Dissemination of the entire methodology to the public, however, would violate an index provider’s intellectual property rights. This leads to a situation, in which market participants would not be provided the index products they require, as no

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Answer business case for neutral index providers will exist anymore. In a worst case scenario, all actively trading market participants would create their own private indices instead of falling back on reliable benchmarks supervised by market authorities.

17. Audit Trail

Consistently to our answer above we suggest to restrict paragraph 17 to submission based indices.

18. Cooperation with Regulatory Authorities

We fully support – and have done so in the past – with full cooperation the competent regulatory authorities.

2. Additional measures to address risks resulting from Submission-based Benchmarks or ownership or control structures: Additional measures have been specified within certain principles to address specific risks arising from a reliance on Submissions (principles 4, 10, 13 and 17) and/or from ownership or control structures (Principles 2, 5 and 16). a. Should these additional requirements apply to Submitters and Administrators of all submissionbased Benchmarks or Benchmarks with the specified ownership/control structures? b. If not, please explain why all or some submission-based Benchmarks or Benchmarks with the specified ownership/control structures should be exempt.

The governance of neutral index providers has been sufficient to ensure objective and reliable index calculation for objective indices in the past. An appropriate governance is one of the key characteristics of objective indices and comprises the following elements: » Public transparency: The use of an index by a multitude of market participants having full access to an index provider’s methodology acts as a safeguard to detect potential miscalculations. » Professional support from market participants: In order to ensure the adequacy of the rules all independent index providers already maintain advisory boards for counsel. The board is composed of experts from leading regional and international banks and investment managers. In contrast, there are strong potential conflicts of interest for “self-indexers”, who are Benchmark Administrators and issuers of financial products at the same time. They predominantly provide indices for the use of organizationally-related units or in-house issuers of products. The potential areas of conflict are amongst others: » They benefit economically from the level of the indices. » It is practically impossible to detect whether or not the design of the benchmark favors their interests so their Benchmark setting is prone to one-sided methodologies. » There is only one specific client for those indices. Potential build-in fees or similar methods will favor the self-indexer on the benefit of all other market participants. We would therefore strongly argue to consider a much stronger restriction on Benchmark Administrators being issuers of financial products or traders in such products.

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Answer

3. Notice Concerning Use of Expert Judgment: Should Administrators be required to briefly describe and publish with each benchmark assessment: a. a concise explanation, sufficient to facilitate a User’s or Market Authority’s ability to understand how the assessment was developed, terms referring to the pricing methodology should be included (e.g., spread-based, interpolated/extrapolated or estimate-based); and b. a concise explanation of the extent to which and the basis upon which judgment (i.e. exclusions of data which otherwise conformed to the requirements of the relevant methodology for that assessment, basing assessments on spreads, interpolation/extrapolation or estimates, or weighting bids or offers higher than concluded transactions etc.), if any, was used in establishing an assessment.

Information to be shared publicly should be at the discretion of the index provider as this impacts the business model and activities of index providers. We argue that neutral index providers have implemented a broad range of governance and operational structures and publication channels. This is in their own interest as it is one important means to serve the market with high quality products in an unbiased way. Effective global competition enforces high scrutiny for superior standards in product related governance and operations. We therefore would argue that the required publication should apply to submission based benchmarks prone to conflict of interest only.

4. Revisions to the principles: Please provide any suggested changes to specific principles or definitions of key terms set out in Annex A, including drafting proposals and rationale. Are any other principles needed: Should principles to address any additional issues, risks or conflicts of interest be developed? Please provide a summary of the issue and drafting for the proposed principle. Conflict of interest arising from ownership structures without a clear split between Benchmark Administrator and Issuer of the Financial Product

As already outlined we would strongly suggest having a clear split between Benchmark Administrators and issuers or financial products based on these benchmarks or traders in these products. We would therefore suggest amending the third principle with a section c) at the end: In addition, a Benchmark Provider and an issuer of financial product should not have any relevant joint ownership structure or should not belong to the same organization. For the avoidance of doubt, providing infrastructure for trading or other related activities would not fall under this restriction.” A detailed reasoning had been given above. We argued in addition that conflicts of interest do not occur for the neutral index providers. We would therefore suggest to reduce the guide-lines of section 3 about “conflict of interests” to panel submission-based indices only.

Definition of Administrator

We outlined above the potential threat of having unclear or split responsibility if the definition of a Benchmark Administrator would remain unchanged. The resolution would be to have the clear 1:1 relationship between the Benchmark

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Answer Administrator and the owner of the intellectual property. Thus we would propose to change the definition to: “An organization or legal person that owns the intellectual property relating to the Benchmark. It should therefore take responsibility for all stages of the Benchmark Administration process, either directly or via third parties, including: a) The calculation of the Benchmark; b) Determining and applying the Benchmark Methodology; and c) Disseminating the Benchmark.”

Definition of Audit Trail

We suggest the adjustment: “For the purposes of the Benchmark-setting process, the documentation and retention of all relevant data, Submissions, other information, judgments (including the rationale for any exclusions of data), analyses and identities of Submitters used in the Benchmark-setting process for an appropriate period.”

Definition of Benchmark

As noted in our introduction of this response, our preferred definition is as follows: “An index is an aggregation of market data of financial instruments or acquirable assets which are used either as a basis for financial products (“underlying”) or to evaluate financial investments (“benchmark”).”

Definition of Benchmark determination to be added

Please clarify “Benchmark Determination” for the purpose of principle 2: “Benchmark Determination covers the whole index production process starting from the procurement of data provided by third party data vendors, composition, calculation and ending with the publication of the Benchmark.” For the sake of clarity the provision of data by data vendors should not be considered Benchmark determination.

Definition of Submission / Submitters

The terms are defined very broadly in the appendix; however there is a mismatch between this broad definition and the narrow actual application in the principles 4, 5 and 13. The appendix should be amended to reflect the narrow definition that is used within the principles: Submissions: Prices, values, rates or other Any information that is not based on actual transactions is provided by a Submitter to an Administrator for the purposes of determining a Benchmark. Submitter: A legal person providing Submissions information to an Administrator or Calculation

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Answer Agent required in connection with the determination of a Benchmark

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Definition of Expert Judgment

We suggest the amendment: “Refers to the exercise of discretion by an Administrator with respect to the use of data which has a significant effect on in determining a Benchmark. Expert Judgment includes extrapolating values from prior or related transactions, adjusting values for factors that might influence the quality of data such as market events or impairment of a buyer or seller’s credit quality, or weighting firm bids or offers greater than a particular concluded transaction.” This suggestion is meant to provide clarity that the continuous operational activities with ordinary impact are not summarized under the definition of “Expert Judgment”, but that this definition applies to extraordinary significant decisions only.

Re Principle 2. Oversight of Third Parties

As already outlined above we would therefore propose to delete in section c) the expression “to Stakeholders and” and thereby limiting transparency requirement to regulatory authorities only.

Re Principle 4.Control Framework for Administrators

As described above we argue that neutral index providers do not need to install a whistle blowing mechanism.

Re Principle 5. Internal Oversight

As outlined under the first question concerning Internal Oversight we suggest the following amendment: “Administrators of submissionbased indices should establish an oversight function to review and provide challenge on all aspects of the Benchmark determination process.” A detailed argumentation had been outlined above.

Re Principle 6. Benchmark Design

As argued in detail under question one we would suggest to rephrase this paragraph. Instead of “requirements” we suggest the term “recommendations for best practice design”. One may in addition extend the recommendations to our detailed list of categories relevant for objective indi4 ces (which comply with the highest standards) .

Re Principle 10. Content of the Methodology

As outlined under the first question concerning “Content of Methodology “ the first sentence of the definition should be amended: “The Administrator should document and Publish the Methodology used to make Benchmark determinations except for proprietary information and subject

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Answer to confidentiality agreements.” As outlined in the introduction, index providers hold a broad range of rights in their indices. The amount of publicly disclosed information is driven by the individual business models. Neutral providers offer in their own business interest full transparency towards to their own clients and would be willing to show transparency to competent regulatory authorities on request. However, a full public transparency is not beneficial as this would massively impact the business models. We therefore support strongly that the requirements for publication are not extended compared to the suggestion.

Re Principle 12. Transition

We strongly believe that the product responsibility should fully remain with the issuer of the financial product and regard it as inappropriate to pass this responsibility to Benchmark Administrators. We would therefore like to suggest restricting paragraph 12 to submission based benchmarks.

Re Principle 13. Submitter Code of Conduct

Submitters should be defined more specifically to those parties providing information for submission based indices. Professional third party data providers should be excluded. The use of submissions from organizationally related entities (companies which act as submitter and Benchmark Administrator) should be prohibited in order to avoid conflict of interest and biased benchmark setting and benchmark determinations.

Re Principle 15. Complaints Procedures

The first sentence should be amended to: “The Administrator of submission-based indices prone to conflict of interest should establish and publish a written complaints procedures policy under commercially reasonable efforts.”

Re Principle 16. Audits

Effective global competition enforces high scrutiny for superior standards in product related governance and operations. Formalization may lead to inflexibility, slowing down innovation and causing inefficiency and cost increases. Amend the second sentence of the first paragraph: “The frequency of audits should be commercially reasonable and proportionate to the size and complexity of the Administrator’s operations and applied only to Administrators of submission-based indices.” Amend the first sentence in the third paragraph: “The frequency and scope of audits should be

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Answer proportionate to the size and complexity of the Administrator’s Benchmark operations…”

Re Principle 17. Audit Trail

The requirement to retain records for 5 years should also be subject to the contractual requirements of data sources. Third party providers of data from regulated markets used by the Index Administrator for the calculation of the benchmark should not fall under this principle. We therefore suggest amending the first sentence: “Written records should be retained by the Administrator of submission-based indices prone to conflict of interest for five years…”

Re principle 18. Cooperation with Regulatory Authorities

Clarify the paragraph to: “Relevant documents, audit trails and other documents required by these principles shall be made readily available by the relevant parties to the relevant competent Regulatory Authorities in carrying out their regulatory or supervisory duties and handed over promptly upon request.”

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