In this paper, we evaluate the Benchmarks (Amendment) Instrument 2015, which brought seven benchmarks into our regulatory and supervisory regime.
Read Evaluation Paper 18/2 (PDF)[1]
We have published the second of a new series of evaluations of our past interventions. We committed to these in our Mission[2].
Background
In April 2015, we intervened in how benchmarks are set after cases of misconduct. We required benchmarks administrators to implement governance and monitoring measures.
We believed that enhanced surveillance and control systems would improve benchmarks’ integrity and restore market confidence, with consequential benefits for financial markets.
Our evaluation
- Most stakeholders believed our rules made benchmarks more robust to manipulation and more representative of the underlying market, reassuring users about the integrity of the benchmarks.
- Our empirical findings support these claims and find that trading costs and liquidity improved for already liquid markets (especially in swap markets).
- For less liquid markets, the fines, the methodology changes, and our regulatory intervention may have increased the perceived regulatory risk, worsening liquidity and participation.
We have identified some lessons that we can apply to current and future work. The work helps us understand the trade-offs regulation of benchmarks need to solve.
Read more about the effects of our intervention in our Evaluation Paper 18/2[1].
For further details, you can read more in our Occasional Paper 46[3] on forex markets, our Research Note[4] on LBMA Silver Price, our Occasional Paper 27[5] on swap markets, and our Research Note[6] on the economics behind regulating financial benchmarks.
You can read about our framework for post-intervention evaluations[7].