WMBA and LEBA Response to the European Commission Consultation
Document on the Regulation of Indices
i. Key Points
ii. Introduction
iii. Answers to Questions
iv. Annexes
i.
ii.
iii.
iv.
v.
About WMBA and LEBA
Indices
(1) WMBA Indices – SONIA, EURONIA, RONIA
(2) LEBA Indices – Gas, Power, Carbon
WMBA Reply to Wheatley Review
LEBA reply to IOSCO Consultation on PRA’s
WMBA Reply to ECON Consultation on LIBOR by Arlene McCarthy
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WMBA and LEBA Response to the European Commission Consultation
Document on the Regulation of Indices
Key Points
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We agree that the publication of benchmarks and indices remains very important to the
ongoing functioning of financial markets and therefore needs strengthened integrity.
We believe that the answers lie principally in the conduct of business requirements and
supervision.
Published benchmarks and indices themselves should not be regulated products; rather
regulation should apply to market participants contributing to such through their
authorisation and ongoing supervision.
Competent Authorities should be the supervisor to relevant benchmarks and indices but
not the calculation agent since both roles are not complimentary.
Given the voluntary basis of submissions, new criminal sanctions are not appropriate
given the stated objectives. Rather, a civil code should apply until the perameters of
existing criminal fraud are reached.
Incentives encouraging more liquid use of unsecured lending markets, using Basle relief,
are a more appropriate way towards the repair of these markets, which would in turn aid
traded prices to be used to inform benchmarks.
In the case of Libor and Euribor, we understand the imperative requirement for i) the
need for a real funding benchmark that can be trusted and relevant to borrowers in all
sections in the economy and which reflects the cost of funds to the lenders; and ii) a
benchmark pricing and revaluation curve for all other derivative and off-balance sheet
exposures.
Aggregated and averaged daily series of traded rates such as OIS, compiled by the WMBA
across all relevant venues can provide a tool to inform a benchmark curve to service
market users.
Introduction
The Wholesale Markets Brokers’ Association (WMBA) and the London Energy Brokers’ Association
(LEBA) (jointly referred to in this document as the ‘WMBA’) are the European industry associations
for the wholesale intermediation of Over-the-Counter (OTC) markets in financial, energy, commodity
and emissions markets and their traded derivatives. Our members are Limited Activity and Limited
Licence firms that act solely as intermediaries in wholesale financial markets.
The WMBA considers it appropriate to reply as its members are active in arranging liquidity and
executing the majority of trades across all the relevant markets including Cash Deposits, Money
Market and Interest Rate Swaps (IRS). Additionally the WMBA collates and publishes a large set of
indices daily in overnight index swaps (OIS), repo and energy related markets that for the settlement
price to a significant part of the OTC markets and also as the basis for variation margin for a number
of CCPs. These indices are based on actual bids/ offers and traded prices.
In short, we believe that LIBOR as a daily benchmark with a large outstanding notional amount of
contracts which reference it, is of great importance and needs to be underpinned and imbued with
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greater integrity. Traded markets, may inform a benchmark curve taking reference from unsecured
OIS, secured and collateralised repo markets, short term government securities and implied interest
rates from FX forwards. Each of these has its own benefits and drawbacks such as sparse liquidity
nodes, implied basis, selective market participation and credit risks. However, taken collectively
within a framework of good governance they may inform and audit the daily LIBOR benchmarking
process.
Chapter 1. Indices and Benchmarks: What they are, who produces them and for which purposes
(1) Which benchmarks does your organisation produce or contribute data to?
The WMBA publishes a set of overnight OIS indices daily for settlement in the relevant OIS and IRS
derivatives markets. These are EURONIA, SONIA and RONIA and are the volume weighted average
price for the aggregation of the consolidated tape of OTC transactions.
LEBA publishes a set of benchmarks across the European Gas, Power, Carbon and Coal markets daily.
Again these are the volume weighted average price [VWAP] for the aggregation of the consolidated
tape of OTC transactions.
These indices tend to be used by the market as a fixing price for the relevant markets and as the
floating leg for associated derivatives.
Member firms of the WMBA and LEBA will contribute to a wide variety of benchmarks across all
sectors of the wholesale markets in their roles as wholesale market brokers. This includes
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ISDAFIX, to facilitate the determination of exercise values for cash-settled swap
options
Exchange-traded benchmarks in the commodities markets, including CME/ NYMEX
and ICE (Oil complex, Natural Gas, soft commodities, metals),
CRB (commodities)
The benchmarks of price reporting agencies [PRAs] such as Platts, Argus, ICIS,
McCloskey, Point Carbon
See ANNEX2 for a detailed listing WMBA and LEBA’s published Indices and Benchmarks and
www.wmba.org.uk and www.leba.org.uk
(2) Which benchmarks does your organization use? What do you use each of these
benchmarks for? Has your organization adopted different benchmarks recently and if so
why?
The WMBA acting as an association does not use any benchmarks.
Member firms acting as wholesale market brokers do not in general use any external benchmarks.
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(3) Have you recently launched a new benchmark or discontinued existing ones?
Yes, in general the Associations remain in a development mode with ongoing changes to products
themselves and additions/deletions to the sets of indices offered. These are detailed on the
websites.
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Examples of new publications include the development of RONIA as a secured OIS
index for sterling last year [2011] and the launch of a suite of forward curves for
European gas markets last month [November 2012].
Examples of deleted publications include the removal of the 0800-09.30 UK Power
window in early 2012.
Examples of changes to publications include the ongoing work to rebase the UK
Power markets onto an EFA calendar over the space of approximately two years.
(4) How many contracts are referenced to benchmarks in your sector? Which persons or
entities use these contracts? And for which purposes?
Contracts tend to reference our indices as the floating leg of derivatives contracts. They are also
used as the settlement price and intraday margining price of cleared contracts on both CCPs and
some exchanges.
Apart from financial market infrastructures [FMIs]; our indices are used by market participants and
end users for audit and verification purposes and also by some entities that offer investment
products which include pricing from these indices.
(5) To what extent are these benchmarks used to price financial instruments? Please provide
a list of benchmarks which are used for pricing financial instruments and if possible
estimates of the notional value of financial instruments referenced to them.
All our indices are used to price financial instruments.
The notional value of financial instruments may be found in the surveys published by the Bank for
International Settlements at http://www.bis.org/
(6) How are benchmarks in your sector set? Are they based on real transactions, offered rates
or quotes, tradable prices, panel submissions, samples? Please provide a description of the
benchmark setting methodology.
All WMBA and LEBA benchmarks are set using VWAP methodology. This is applied to a consolidated
tape across contributing member venues and facilitates an aggregated output. Detailed
methodological descriptions are available both in Annex 1 and on the websites.
(7) What factors do you consider to be the most important in choosing a reliable benchmark?
Could you provide examples of benchmarks which incorporate these factors?
Important factors to take into account would be:
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Document on the Regulation of Indices
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liquidity of the underlying
high transparency of benchmark development and changes
good governance (i.e., a single, identified authority with specific accountability for the
sound operation of the benchmark)
a methodology which suits the underlying
an underlying infrastructure is not controlled by any one or a small number of market
participants
We emphasis that WMBA and LEBA benchmarks easily and amply fulfil all these characteristics.
Chapter 2. Calculation of Benchmarks: Governance and Transparency.
(8)
What kinds of data are used for the construction of the main indices used in your sector?
Which benchmarks use actual data and which use a mixture of actual and estimated data?
WMBA and LEBA benchmarks use actual traded data arranged by non position taking intermediaries.
These venues are acting in free and open competition against each other without the resort to
proprietary Intellectual Property rights around the underlying which characterises ‘on exchange’
trading in ‘Regulated Markets’ [RMs]. This is collected and aggregated from venues either close to
real time or on an end of day basis.
(9)
Do you consider that indices that do not use actual data have particular informational or
other advantages over indices based on actual data?
It is self evident that where a market does not trade actively through the day, indices will need to be
formed from the estimation of market professionals. This characterisation covers the vast majority
of traded products. It is therefore not the location of the transactional indices which we publish.
(10) What do you consider are the advantages and disadvantages of using a mixture of actual
transaction data and other data in a tiered approach?
Where available, actual transaction data, particularly where collated from neutral venues such as
those of our members; and not corrupted by the Intellectual Property rights which exchange venues
use to exclude open access and competition, is clearly far more preferable. The rational remains self
evident, but we note that these markets are a minority across the breadth of all products and
therefore a proportional approach is required at all times.
(11) What do you consider are the costs and benefits of using actual transactions data for
benchmarks in your sector? Please provide examples and estimates. (12) What specific
transparency and governance arrangements are necessary to ensure the integrity of
benchmarks?
In the actively traded sectors which use broker intermediaries to arranging transactions, the costs
for derived benchmarks are minimal and the benefits are extensive. Costs are offset by fees levied
either to the large quote vendors, who pass on the fixings via their screens free of charge; or for
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server based electronic access directly to the data but these are minimal (under Eur 200 per user per
year) and set only to cover costs.
Benefits derive not only from the neutral and transacted nature of the data but from the open and
free architecture around access to the products. This sits in stark contrast to exchange based data
where fees are high and products tend not to be fungible.
We note that member firms each supply traded data feeds to clients on a real time basis which does
not go towards the provision of benchmarks, but is utilised by the market for price transparency.
(12) What specific transparency and governance arrangements are necessary to ensure the
integrity of benchmarks?
WMBA and LEBA would draw attention to the governance paper drawn up by AFME in June this year
[2012] and ratify all the points made therein. We would note that we endeavour to meet all those
criteria.
These may be summarised as follows:
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Transparency of methodology, of operation and application of any judgement
Systems and controls which lead to reliable daily operations
Appropriate qualifications, seniority of and responsibility of staff (so less open to being
influenced)
Querying and Complaints process – need for somewhere to raise concerns (independent of
benchmark contributors)
Appropriate consultation with all stakeholders on changes and charges
(12) What are the advantages and disadvantages of imposing governance and transparency
requirements through regulation or self-regulation?
Index providers fulfill a high impact and critical role in many markets and as an association of market
users, we support any measures designed to ensure that appropriate standards are achieved,
provided these can be justified on a cost benefit basis. Governance and the application of regulation
should always be considered on a careful assessment of the associated costs against the expected
resulting benefits. Market impact of the index or benchmark is a further important factor and it is
clear that many index/ benchmark prices have significant market impact.
IOSCO has considered this balance in its review of oil price reporting agencies, in which it
recommended that appropriate protections and governance are put in place through self-regulatory
principles for PRA benchmark governance. PRAs are thus encouraged to comply subject to
independent audit. If satisfactory compliance is not achieved, then other policy instruments,
including applying a form of regulation of PRAs should be applied. Please see the response of WMBA
and LEBA to the IOSCO consultation of May 2012 which is attached with this return as Annex 3.
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(14) What are the advantages and disadvantages of making contributing data or estimates to
produce benchmarks a regulated activity? Please provide your arguments.
Again, we consider that any such extension should be considered on a cost-benefit basis.
Benchmarks/ indices provide essential transparency to markets and it is important not to impose
regulatory burdens which may deter legitimate participation in these processes.
We note that it costs the member firms of WMBA and LEBA a substantial annual fee to enable the
association to publish the benchmarks as it does, despite the attempts to cover costs in fee income
for distribution. Any further costs imposed would simply deter us and our members from providing
this service, leading to less transparency and more importantly, far less consumer choice and
increased costs to the population in general.
Regulatory reporting of benchmark submissions should leverage existing trade capture and reporting
routes already used by many market participants for their existing trading and/ or regulatory
reporting activities.
(15) Who in your sector submits data for inclusion in benchmarks? What are the current
eligibility requirements for benchmarks' contributors?
The member firms of WMBA and LEBA primarily submit data for inclusion in benchmarks, but in
order capture all possible trades we have ensured that this is not a criterion for submission, and all
suitable transactions should be facilitated.
(16) How should panels be chosen? Should safeguards be provided for the selection of panel
members, and if so which safeguards?
WMBA and LEBA indices are not panel based.
(17) How should surveys of data used in benchmarks be performed? What safeguards are
necessary to ensure the representativeness and integrity of data gathered in this way?
WMBA and LEBA indices are not panel based. We did make our cases for survey rigour,
independence and transparency of methodologies in our response to IOSCO concerning PRA’s as
attached in Annex 3.
(18) What are the advantages and disadvantages of large panels? Even in the case of large
panels could one panel member influence the benchmark?
WMBA and LEBA indices are not panel based.
We did make our cases for survey rigour, independence and transparency of methodologies of panel
based systems in our reply to the Wheatley enquiry in Annex 2
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(19) What would be the main advantages and disadvantages to auditing of panels? Please
provide examples.
All panels should be audited. It remains a question of proportionality whether this is done internally
or externally. This is likely best based upon the systematic importance of the data output.
(20) Where indices rely on voluntary contributions, do you consider that there are factors
which may discourage the making of these contributions and if so why?
We strongly feel this to be the case.
Please refer to answer provided in Question 14.
(21) What do you consider to be the advantages and disadvantages of mandatory reporting of
data? Please provide examples.
We acknowledge that there is ongoing would under the Wheatley review to enforce mandating of
submissions where indices have previously relied upon voluntary contributions. We quickly note that
such measures may only provide superficial fixes due to the global nature of most markets and
unintended consequences that could flow from radical now measures such as altering the structure
of the underlying business.
WMBA and LEBA though, believe that if powers to compel participants in financial markets to make
submissions to benchmarks exist, they should only be used as a last resort, and where there is a
significant risk of widespread disruption. Thought should be given to which body would have power
to compel an entity to make a submission to a specific index, particularly where that entity is not
regulated. If powers to compel participants in financial markets to make submissions to benchmarks
are exercised, it is important that such participants can benefit from "safe harbours" for so long as
they act within the scope of the rules of the relevant index.
(22) For entities contributing to benchmarks which are regulated by financial regulation, what
would be the advantages and disadvantages of bringing their benchmark submissions
under the scope of this framework?
See the answers to Q. (21) above. It is quite likely that our members would cease to wish to create
the benchmarks.
(23) Do you consider that responsibility for making adjustments if inadequate data is available
should rest with the contributor of the data, the index provider or the user of the index?
This responsibility should rest with the index provider in accordance with the procedures laid out in
the governance.
(24) What is the formal process that you use to audit the submissions and calculations?
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WMBA and LEBA use the submission to a management data council who are supervised by an audit
committee in accordance with both the rules of the associations and the principals laid down in the
AFME proposals.
(25) If there are any weaknesses identified in the audit, who are they reported to and how are
they addressed? Is there a follow up process in place?
As per answer (24). Any weaknesses identified in the audit feed into the Governing Data Council and
then to the executive management. Follow up processes are in the ongoing supervision of the
associations by their Governing Data Council in accordance with both the rules of the associations
and the principals laid down in the AFME proposals.
(26) How often are submissions audited, internally or externally, and by what means? Do you
consider the current audit controls are sufficient? What additional validation procedures
would you suggest?
WMBA and LEBA indices are not panel based, and therefore we have no submissions.
(27) What are the advantages and disadvantages of a validation procedure? Please provide
examples.
WMBA and LEBA indices are not panel based, and therefore we have no submissions.
(28) Who should have the responsibility for auditing contributed data, the index provider or an
independent auditor or supervisor?
WMBA and LEBA believe that the index provider should have the responsibility for auditing
contributed data since it is in the interests of that provider to create the best integrity framework for
the benchmarks. The users of the benchmarks may simply choose instead to follow an alternative
provider.
(29) What are the advantages and disadvantages of making benchmarks a regulated activity?
Please provide your arguments.
Proportionality should be the principal determinant in considering formal regulation of the activity.
One should consider the function of a particular benchmark (governance, controls, management,
conflict of interest, etc.).
Given that proprietary indices are today already subject to a number of governance mechanisms, the
main consequence of additional rules in respect of proprietary indices (e.g. the mandatory use of
third party calculation agents) beyond governance arrangements already in place would be to
increase costs borne by the end investor or otherwise reduce investor choice, without advancing in a
meaningful way the level of protection provided to the investor.
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Chapter 3: The Purpose and Use of Benchmarks
(30) Is it possible and desirable to restrict the use of benchmarks? If so, how, and what are the
associated costs and benefits? Please provide estimates.
Ensuring appropriate standards so that benchmarks have integrity is the prime consideration.
WMBA and LEBA would encourage a much wider use of benchmarks as a key tool in the export of
transparency from traded markets. We can see no good reason to restrict the use of benchmarks
since they serve to assist market liquidity and transparency.
(31) Should specific benchmarks be used for particular activities? By whom? Please provide
examples.
WMBA and LEBA believe that choice and competition should be paramount. Therefore the
mandating of specific benchmarks to be used for particular activities could only significantly increase
systemic risks and the costs to the consumer.
(32) Should benchmarks developed for wholesale purposes be used in retail contracts such as
mortgages? How should non-financial benchmarks used in financial contracts be
controlled?
Please refer to the answer in Q. (32)
(33) Who should have the responsibility for ensuring that indices used as benchmarks are fit
for purpose, the provider, the user (firms issuing contracts referenced to benchmarks), the
trading venues or regulators?
Responsibility should be borne across the stakeholders to ensure vigilance and efficiency.
It may primarily rest with the provider of the benchmark since they are closest to the process and
bear responsibility for their activities, subject to appropriate scrutiny from regulatory authorities
(where justified on cost benefit grounds) and to appropriate due diligence from market users.
However there should be an element of competition wherein the users of the benchmark are easily
and in a costless manner , be able to choose and switch between different providers.
Chapter 4: Provision of Benchmarks by Private or Public Bodies
(34) Do you consider some or all indices to be public goods? Please state your reasons.
WMBA and LEBA believe that there exist differences between key public benchmarks and
benchmarks in the broader sense (including proprietary indices). In short, whilst access should
always be fairly and openly provided to all published indices, not all those indices should be
regarded as “public goods” and this should be reflected in the design of regulation.
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Key here is the role of proportionality in the level of transparency that might be expected of a public
benchmark which could not readily be extended to private indices which have more limited usage.
Whilst intellectual property rights are likely critical for ongoing commercial efforts and innovation,
access rights remain critical to allow for competition to be offered to the consumer.
(35) Which role do you think public institutions should play in governance and provision of
benchmarks?
This should be principally exercised through the supervision of authorised persons by competent
authorities. These persons are already the substantial majority of contributing and consuming
participants of benchmarks and indices across the wholesale markets.
Criminal authorities will also play a role in the cases where fraud and other transgressional activities
are suspected by the NCAs.
(36) What do you consider to be the advantages and disadvantages of the provision of indices
by public bodies?
We can see few advantages of provision of indices by public bodies.
Conversely the disadvantages include the cost and choice to the consumer, together with the
conflicts inherent where the supervisor to the participants and to the system as a whole is also asked
to become an actor therein.
(37) Which indices, if any, would be best provided by public bodies?
Public bodies are best suited for the collection of national statistics. This is not and should not be
confused with the compilation of international transactions into international indices.
Chapter 5: Impact of Potential Regulation: Transition, Continuity and International Issues.
(38) What conflicts of interest would arise in the provision of indices by public bodies? What
would be the best way of avoiding these conflicts of interest?
As per answers to Q.(36) and Q.(37) conflicts would arise from the confusion with
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the role of national statistics offices
from the implicit costs of nationalised production of the indices being inconsistent with
the global nature of the product
from the lack of innovation and responsive reflexivity from distant and state owned
production
from the dual role that would make governance problems be inherent in the
production, regulation and supervision of index production.
From the lack of competition to ensure the delivery of a competent and consistent
service to stakeholders
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(39) What are the likely transition challenges, costs and timelines for relevant benchmarks?
Please provide examples.
These would follow from the above answers.
(40) How do you consider that the adoption of new benchmarks could be ensured? Is this best
framed in terms of encouraging or mandating the use of particular benchmarks?
The concept of mandating is not one that should be employed by supervisory authorities since it
always causes the activity to either cease entirely or move outside the jurisdiction. Mandating also
usually produces a set of unintended consequences that raise systemic risk, lower trust and integrity
and raise the costs of business for end consumers.
Rather, the freedom of market participants and end consumers to employ choice will ensure the
highest levels of integrity and due diligence are employed. The use of permissions and incentives
could also be employed as a last resort.
There should be clear and long term arrangements in place to manage any transition to alternative
benchmarks. Failure to achieve a smooth and progressive transition will result in major market
dislocation and significant “jump risk” if there is an abrupt move from old benchmarks to a
successor.
(41) How can reforms of the regulation of benchmarks be most easily implemented?
Given the global nature of benchmarks and the national or regional nature of regulation, there are
inherent conflicts and difficulties. Therefore any implementation should be on a basis of fitting into
the IOSCO principals in a globally acceptable, recognised and standardised way. Further, there
should be alignment with existing regulatory initiatives, especially those relating to the creation of
trade repositories and databases. Note should also be taken of the hurried and inappropriate nature
of many of the G20 reforms currently in progress, and suitable time frames be employed.
(42) What positive or negative impacts, if any, do you see on small and medium-sized
enterprises of the possible regulation of indices, and how could any negative impacts be
mitigated?
From our answers above it would be difficult to see clear picture of impacts without knowing the
nature of the proposed regulation. Since the indices WMNA and LEBA publish are as open and
precise as we have explained, it would be difficult to envisage any benefits to market participants,
particularly so inside a cost-benefit framework where only costs would be raised.
(43) Are there other impacts which should be considered? If so please specify the nature of
these impacts and provide evidence.
As already mentioned, the impacts would lie in cost-benefit disadvantages, international disharmonisation and a lack of innovation and competition should barriers to entry be raised by
regulation, which is almost always the case.
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(44) In which countries are benchmarks used in your sector produced? From which countries
are data used for the production of benchmarks in your sector sourced? In which countries
are benchmarks used in your sector used?
Data in our benchmarks is almost exclusively sourced in the European Union. They are used in
countries across the globe.
(45) Are there non-EU benchmarks which could serve as substitutes? Are there non-EU
benchmark providers which could produce similar benchmarks?
For the indices published by WMBA and LEBA, it is likely that only in coal are there global indices
easily replicated outside the EU.
(46) Are there international benchmarks which could serve as substitutes for national
benchmarks?
WMBA and LEBA would consider their benchmarks as being international due to the global nature of
the participants in these markets.
Contact
If you require any further information or clarification in respect of transaction reporting please do
not hesitate to contact us.
Alex McDonald, CEO
Telephone: +44 (0) 203 207 9740
Email: amcdonald@wmba.org.uk
or
Pamela Donnison, Compliance
Telephone: +44 (0) 203 207 9740
Email: pdonnison@wmba.org.uk
Email: compliance@wmba.org.uk
Wholesale Markets Brokers’ Association/ London Energy Brokers’ Association
St Clements House, 27-28 Clements Lane,
London EC4N 7AE
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Annexes
Annex 1
Wholesale Markets Brokers’ Association & London Energy Brokers’ Association
The Wholesale Markets Brokers’ Association (WMBA) and the London Energy Brokers’ Association
(LEBA) (co-referred to in this document as the ‘WMBA’) are the European industry associations for
the wholesale intermediation of Over-the-Counter (OTC) markets in financial, energy, commodity
and emissions markets and their traded derivatives. Our members are Limited Activity and Limited
Licence firms that act solely as intermediaries in the said wholesale financial markets. As Interdealer
Brokers (IDBs), the WMBA members’ principal client base is made up of global banks and primary
dealers. The replies below to the questions in the paper should be seen in the context of WMBA
members acting exclusively as intermediaries and not as own account traders. (Please see
www.wmba.org.uk and www.leba.org.uk for information about the associations, its members and
products.) For this reason, some of the questions in the Consultation Paper are not entirely relevant
to WMBA members’ activities even though they are to most of their clients. Further, some answers
take into account industry views and experience.
Operating as the hub of the global financial market infrastructure, IDBs are MiFID compliant and
highly regulated intermediaries by virtue of their regulatory authorisation and from being subject to
supervision under CAD. Our members are neutral, independent, and multi-lateral, and provide free,
fair and open access to their trading venues for all suitably authorised and regulated market
participants. IDBs do not take positions in the markets in which they operate and their collective
service as the gateway to the global financial marketplace creates price discovery and significant
liquidity. All transactions, whether executed via voice, hybrid or fully electronic means, are
immediately captured at the point of trade, are subject to straight-through-processing and are made
available for transparent and timely transaction reporting to the relevant regulators.
WMBA Members:
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BGC Partners
EBS Group Ltd
GFI Group Inc
Gottex Brokers SA
ICAP plc
Martin Brokers (UK) Ltd
Reuters Transaction Services Ltd
Sterling International Brokers Ltd
Sunrise Brokers Ltd
Tradition (UK) Ltd
Tullett Prebon plc
Vantage Capital Markets LLP
LEBA Members:
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Evolution Markets Ltd
GFI Group, Inc
ICAP Energy Ltd
PVM Oil Associates Ltd
Spectron Group Ltd
Tradition Financial Services Ltd
Tullett Prebon Energy Ltd
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For further information please visit www.wmba.org.uk and www.leba.org.uk
Annex 2
WMBA Indices – SONIA, EURONIA, RONIA
Sterling Overnight Index Average ("SONIA")
Introduced in March 1997, SONIA is the Sterling Overnight Index Average ("SONIA").
tracks actual market overnight funding rates.
The index
SONIA is the weighted average rate to four decimal places of all unsecured sterling overnight cash
transactions brokered in London by contributing WMBA member firms between midnight and
4.15pm with all counterparties in a minimum deal size of £25 million.
The index is a weighted average overnight deposit rate for each business day. Each rate in the
average is weighted by the principal amount of deposits which were taken on that day.
DATA VENDORS: SONIA is available to view by subscription and is also available on the following data
vendor pages: Thomson Reuters, SONIA1; Bloomberg, WMBA.
Contributing Brokers: ICAP plc, Martin Brokers (UK) Ltd, Sterling International Brokers Ltd, Tradition
(UK) Ltd, and Tullett Prebon plc.
Definition of an Overnight Indexed Swap (OIS): An OIS is a fixed rate interest rate swap against a
floating rate index, e.g. SONIA. It replicates a mismatched deposit position through either: a shortterm loan funded by an overnight deposit, or an overnight loan funded by a short-term deposit. In
this way, OIS allow banks to manage their liquidity requirements more effectively.
Required documentation: OIS structures are completed using International Swaps and Derivatives
Association (ISDA) documentation. Click here to view the ISDA SONIA definition.
Euro Overnight Index Average ("EURONIA")
Introduced in January 1999, EURONIA is the Euro Overnight Index Average ("EURONIA"). This index
tracks actual market overnight funding rates.
EURONIA is the weighted average rate to four decimal places of all unsecured euro overnight cash
transactions brokered in London by contributing WMBA member firms between midnight and
4.00pm with all counterparties in a minimum deal size of £25 million.
The index is a weighted average overnight deposit rate for each business day. Each rate in the
average is weighted by the principal amount of deposits which were taken on that day.
DATA VENDORS: EURONIA is available to view by subscription and is also available on the following
data vendor pages: Thomson Reuters, EURONIA1; Bloomberg, WMBA.
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Contributing Brokers: ICAP plc, Martin Brokers (UK) Ltd, Sterling International Brokers Ltd, Tradition
(UK) Ltd, and Tullett Prebon plc.
Definition of an Overnight Indexed Swap (OIS): An OIS is a fixed rate interest rate swap against a
floating rate index, e.g. EURONIA. It replicates a mismatched deposit position through either: a
short-term loan funded by an overnight deposit, or an overnight loan funded by a short-term
deposit. In this way, OIS allow banks to manage their liquidity requirements more effectively.
Required documentation: OIS structures are completed using International Swaps and Derivatives
Association (ISDA) documentation. Click here to view the ISDA EURONIA Definition.
Repurchase Overnight Index Average ("RONIA")
Introduced in 2011, RONIA is the Repurchase Overnight Index Average ("RONIA"). This index tracks
actual market overnight funding rates.
RONIA is the weighted average rate to four decimal places of all secured sterling overnight cash
transactions brokered in London by contributing WMBA member firms between midnight and
4.15pm with all counterparties with no minimum deal size.
RONIA eligible transactions are Delivery by Value (DBV) which is a mechanism whereby a CREST
member who has borrowed money against overnight gilt collateral may have gilts on its account to
the required value delivered automatically by the system to the CREST account of the money lender.
The index is a weighted average overnight deposit rate for each business day. Each rate in the
average is weighted by the principal amount of deposits which were taken on that day.
DATA VENDORS: RONIA is available to view by subscription and is also available on the following
data vendor pages: Thomson Reuters, RONIA1; Bloomberg, WMBA.
Contributing Brokers; BGC Partners, ICAP Plc, Martin Brokers (UK) Ltd, Sterling International Brokers
Ltd, Tradition (UK) Ltd, Tullett Prebon plc.
Definition of a Secured Overnight Index Swap (SOIS): A Secured Overnight Index Swap (SOIS) is a
repurchase agreement in which securities are sold provided that they will be repurchased on the
following day. Financial institutions use overnight repos as a means of raising short-term money for
financing inventories through either: a short-term loan funded by an overnight deposit, or an
overnight loan funded by a short-term deposit. In this way, SOIS allow banks to manage their
liquidity requirements more effectively.
Required documentation: SOIS structures are completed using International Swaps and Derivatives
Association (ISDA) documentation. Click here to view the ISDA RONIA Definition.
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LEBA Indices – Gas, Power, Carbon
LEBA Carbon Indices
The LEBA Carbon Indices were introduced in March 2005 covering European Union Allowances (EUA)
and Certificates of Emission Reduction (CER). The Indices are the volume weighted averages of all
transactions during a given period or during the whole of the day, dependent on the particular
index. Closing prices are the averages of all indications obtained from all the contributing members.
For full details of each index, please see the specifications below.
Contributing Brokers: Evolution Markets Limited, GFI Brokers Ltd, ICAP Energy, Marex Spectron Ltd,
Tradition Financial Services Ltd, Tullett Prebon Energy
LEBA Carbon EUA Index; Price Calculation Methodology
LEBA Carbon EUA - Daily Index: The Index price will be calculated every trading day using the
volume-weighted average of EUA trades transacted by LEBA firms for physical delivery on any
relevant forward periods, and any associated Strip Prices.
LEBA Carbon EUA – 08:00 to 10:00 Index: The Index price will be calculated every trading day using
the volume-weighted average of EUA trades transacted by LEBA firms for physical delivery on the
first two nearby annual forward delivery periods between 08:00am and 10:00am.
LEBA Carbon EUA – Spot Index: The Index price will be calculated every trading day using the
volume-weighted average of EUA trades transacted by LEBA firms for physical delivery on Spot.
LEBA Carbon EUA – Daily Closing Prices: Closing Prices will be calculated every trading day using
price assessments collected directly from contributing member firms at around 17.00 London time.
Additional prices may be collected from contributing members at regular intervals during the course
of the trading day.
LEBA Carbon CER Index: Price Calculation Methodology
LEBA Carbon CER- Daily Index: The Index price will be calculated every trading day using the
volume-weighted average of CER trades transacted by LEBA contributing member firms for spot
physical delivery on any relevant forward periods, and any associated Strip Prices.
LEBA Carbon CER – Daily Closing Prices: Closing Prices will be calculated every trading day using
price assessments collected directly from contributing member firms at around 17.00 London time.
Additional prices may be collected from contributing members at regular intervals during the course
of the trading day.
LEBA Power Indices
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LEBA started compiling indices covering the European power markets in 2003. LEBA publish indices
covering the prompt UK power market up to one month ahead. The LEBA UK Power Prompt Indices
were introduced in July 2003 initially covering Day Ahead and Week Ahead UK Power. The indices
are the volume weighted averages of all transactions during a given period or during the whole of
the day, dependent on the particular index. A Month Ahead window index was added in 2010. For
full details of each index, please see the specification below. LEBA will commence the publication of
additional indices covering the UK and Continental European power markets in the near future.
Contributing Brokers: GFI Brokers Ltd, ICAP Energy, Marex Spectron Ltd, Tullett Prebon Energy
All LEBA UK Power Indices will be published daily at approximately 18.00hrs London time on the
LEBA website (except where indicated *)
Baseload Indexes:
Day Ahead (7.30 - 9.00am): Calculated using a volume-based, weighted average of all day ahead
baseload trades executed in London by contributing brokers between 07.30 hrs and 09.00 hrs
London time each day. The Index values electricity trades for baseload delivery on the day following
the deal date (Trade Day). The delivery day is the Index day. Weekends shall not be included in the
Index. In the calculation of the Index, previous business day convention shall apply.
Day Ahead Weekend Index (7.30 - 9.00am): Calculated using a volume-based, weighted average of
all weekend ahead baseload trades executed in London by contributing brokers between 07.30 hrs
and 09.00 hrs London time each day. The Index values electricity trades for baseload delivery on the
weekend following the deal date (Trade Day). The delivery days are the Index days. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 07.30hrs and 09.00hrs London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Working Days Index (7.30am – 5.00pm): Calculated using a volume-based, weighted average of all
day ahead baseload trades executed in London by contributing brokers between 07.30hrs and
17.00hrs London time on Trade Day. The Index values electricity trades for baseload delivery on the
working day following Trade Day. The delivery day is the Index day. Weekends shall not be included
in the Index. In the calculation of the Index, previous business day convention shall apply.
Day Ahead Weekend Index (7.30am – 5.00pm): Calculated using a volume-based, weighted average
of all weekend ahead baseload trades executed in London by contributing brokers between 07.30hrs
and 17.00hrs London time each day. The Index values electricity trades for baseload delivery on the
weekend following the deal date (Trade Day). The delivery days are the Index days. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 07.30hrs and 17.00hrs London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
All Days Saturday Index (7.30am – 5.00pm): Calculated using a volume-based, weighted average of
all Saturday baseload trades executed in London by contributing brokers between 07.30hrs and
17.00hrs London time each day. The Index values electricity trades for baseload delivery on
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Saturday following the deal date (Trade Day). The delivery days are the Index days. In the Index,
Saturday shall be calculated using a volume-based, weighted average of all Saturday trades executed
in London by contributing brokers between 07.30hrs and 17.00hrs London time on the previous
business day. In the calculation of the Index, previous business day convention shall apply.
All Days Sunday Index (7.30am – 5.00pm): Calculated using a volume-based, weighted average of all
Sunday baseload trades executed in London by contributing brokers between 07.30hrs and 17.00hrs
London time each day. The Index values electricity trades for baseload delivery on Sunday following
the deal date (Trade Day). The delivery days are the Index days. In the Index, Sunday shall be
calculated using a volume-based, weighted average of all Sunday trades executed in London by
contributing brokers between 07.30hrs and 17.00hrs London time on the previous business day. In
the calculation of the Index, previous business day convention shall apply.
Month Ahead Window Index (4.00 – 4.15pm): Calculated using a volume-based, weighted average
of all month-ahead baseload trades executed in London by contributing brokers between 16.00hrs
and 16.15 hrs London time each trading day. The Month Ahead Window Index values baseload
trades for delivery in the EFA month following the EFA month in which the deal is executed. The
index month is the delivery month e.g. the index published on the 17 June 2009 is based on all the
trades executed on the 17 June 2009 for delivery every day during the EFA month of July 2009.
Month Ahead Window Index Average: Calculated once a month on the last trading day of the EFA
month e.g. in EFA month July 2009 the Month Ahead Index will refer to EFA August 2009. At the
end of EFA July 2009 (Friday 24th July) LEBA will publish the Month Ahead Window Index Average
for August 2009 as well as the Month Ahead Window Index for that day. It will be calculated by
taking the average of all the individual daily Month Ahead Window indices for the relevant EFA
month. The Index will also include a total volume figure for that month in addition to the Index. *
The Index will be published at approximately 18.00hrs London time on the last trading day of the
EFA month on the LEBA website.
Block Indexes:
Monday – Friday Peak Blocks 3&4&5 Index (7.30am – 9.00am): Calculated using a volume-based,
weighted average of all day ahead peak blocks 3&4&5trades executed in London by contributing
brokers between 0730hrs and 0900hrs London time on Trade Day. The Index values electricity
trades for peakload delivery on the working day following Trade Day. The delivery day is the Index
day. In the calculation of the Index, previous business day convention shall apply.
Monday – Friday Blocks 1&2 Index (7.30am – 9.00am): Calculated using a volume-based, weighted
average of all day ahead blocks 1&2 trades executed in London by contributing brokers between
0730hrs and 0900hrs London time on Trade Day. The Index values electricity trades for block
delivery on the working day following Trade Day. The delivery day is the Index day. In the
calculation of the Index, previous business day convention shall apply.
Monday – Friday Blocks 3&4 Index (7.30am – 9.00am): Calculated using a volume-based, weighted
average of all day ahead blocks 3&4 trades executed in London by contributing brokers between
0730hrs and 0900hrs London time on Trade Day. The Index values electricity trades for block
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delivery on the working day following Trade Day. The delivery day is the Index day. In the
calculation of the Index, previous business day convention shall apply.
Monday – Friday Block 5 Index (7.30am – 9.00am): Calculated using a volume-based, weighted
average of all day ahead block 5 trades executed in London by contributing brokers between
0730hrs and 0900hrs London time on Trade Day. The Index values electricity trades for block
delivery on the working day following Trade Day. The delivery day is the Index day. In the
calculation of the Index, previous business day convention shall apply.
Monday – Friday Block 6 Index (7.30am – 9.00am): The Monday – Friday Block 6 Index (7.30am –
9.00am) is calculated using a volume-based, weighted average of all day ahead block 6 trades
executed in London by contributing brokers between 0730hrs and 0900hrs London time on Trade
Day. The Index values electricity trades for block delivery on the working day following Trade Day.
The delivery day is the Index day. In the calculation of the Index, previous business day convention
shall apply.
Monday – Friday Peak Blocks 3&4&5 Index (7.30am – 5.00pm): Calculated using a volume-based,
weighted average of all day ahead peak blocks 3&4&5 trades executed in London by contributing
brokers between 0730hrs and 1700hrs London time on Trade Day. The Index values electricity
trades for peakload delivery on the working day following Trade Day. The delivery day is the Index
day. In the calculation of the Index, previous business day convention shall apply.
Weekend Peak Blocks 3&4&5 Index (7.30am – 9.00am): Calculated using a volume-based, weighted
average of all weekend peak blocks 3&4&5trades executed in London by contributing brokers
between 0730hrs and 0900hrs London time on Trade Day. The Index values electricity trades for
peak load delivery on the weekend following the deal date (Trade Day). The delivery days are the
Index days. In the calculation of the Index, previous business day convention shall apply.
Weekend Blocks 1&2 Index (7.30am – 9.00am): Calculated using a volume-based, weighted average
of all weekend blocks 1&2 trades executed in London by contributing brokers between 0730hrs and
0900hrs London time on Trade Day. The Index values electricity trades for blocks 1&2 delivery on
the weekend following the deal date (Trade Day). The delivery days are the Index days. In the
calculation of the Index, previous business day convention shall apply.
Weekend Blocks 3&4 Index (7.30am – 9.00am): Calculated using a volume-based, weighted average
of all weekend blocks 3&4 trades executed in London by contributing brokers between 0730hrs and
0900hrs London time on Trade Day. The Index values electricity trades for blocks 3&4 delivery on
the weekend following the deal date (Trade Day). The delivery days are the Index days. In the
calculation of the Index, previous business day convention shall apply.
Weekend Block 5 Index (7.30am – 9.00am): Calculated using a volume-based, weighted average of
all weekend block 5 trades executed in London by contributing brokers between 0730hrs and
0900hrs London time on Trade Day. The Index values electricity trades for block 5 delivery on the
weekend following the deal date (Trade Day). The delivery days are the Index days. In the
calculation of the Index, previous business day convention shall apply.
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Weekend Block 6 Index (7.30am – 9.00am): Calculated using a volume-based, weighted average of
all weekend block 5 trades executed in London by contributing brokers between 0730hrs and
0900hrs London time on Trade Day. The Index values electricity trades for block 6 delivery on the
weekend following the deal date (Trade Day). The delivery days are the Index days. In the
calculation of the Index, previous business day convention shall apply.
Weekend Block 6 Index (7.30am – 9.00am): Calculated using a volume-based, weighted average of
all weekend block 5 trades executed in London by contributing brokers between 0730hrs and
0900hrs London time on Trade Day. The Index values electricity trades for block 6 delivery on the
weekend following the deal date (Trade Day). The delivery days are the Index days. In the
calculation of the Index, previous business day convention shall apply.
LEBA Coal Pricing Indices
The LEBA Coal Pricing Indices were introduced in September 2010 covering API 2 OTC Cleared CIF
Rotterdam Coal Swap Contract and API 4 Cleared FOB Richards Bay Coal Swap Contract. The LEBA
Coal pricing Indices are the averages of indications provided by all contributing member companies.
For full details of each aspect of the index, please see the specification below.
Contributing Brokers: GFI Brokers Ltd, ICAP Energy, Marex Spectron Ltd, Tradition Financial Services
Ltd, Tullett Prebon Energy
OTC Cleared CIF Rotterdam Coal Swap Contract: Description: CIF Rotterdam coal swap contract API
2 quality. Currency: US ($). Minimum Tick Size: Five cents per tonne, $0.05/tonne. Contract Series:
Front 4 contract months, the front 4 to 7 quarter contracts (i.e. quarter contracts up to the end of
the front calendar year), 5 season contracts and up to 4 calendar years. Expiry Day: Month contracts
will cease trading at the close of business on the last Friday of the contract delivery period.
Quarters, seasons and calendar years cease trading as a quarter/season/calendar year at the close of
business on the last Friday of the first month contract in that quarter/season/calendar year.
OTC Cleared FOB Richards Bay Coal Swap Contract: Description: Cash settled FOB Richards Bay coal
swap contract API 4 quality. Currency: US ($). Minimum Tick Size: Five cents per tonne,
$0.05/tonne. Contract Series: Front 4 contract months, the front 4 to 7 quarter contracts (i.e.
quarter contracts up to the end of the front calendar year), 5 season contracts and up to 4 calendar
years. Expiry Day: Month contracts will cease trading at the close of business on the last Friday of
the contract delivery period. Quarters, seasons and calendar years cease trading as a
quarter/season/calendar year at the close of business on the last Friday of the first month contract
in that quarter/season/calendar year.
OTC Cleared API 2 Coal Options Contract: Description: Cash settled Premium Paid Option on the
underlying API 2 Forward contract for the corresponding expiry. Currency: US ($). Pricing: US ($)
and cents per metric tonne. Minimum Tick Size: $0.01 per tonne. Option Type: Options are
European style single expiry options. Last Trading Day: 17:00 hours UK time on the first working day
of the month prior to commencement of the underlying forward swap contract. Contract Series: 3
to 7 quarter contracts and 3 whole tradable calendar contracts. All option contracts expire into the
underlying contract of the corresponding contract series. Business Days: UK business days.
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OTC Cleared API 4 Coal Options Contract: Description: Cash settled Premium Paid Option on the
underlying API 4 Forward contract for the corresponding expiry. Currency: US ($). Pricing: US ($)
and cents per metric tonne. Minimum Tick Size: $0.01 per tonne. Option Type: Options are
European style single expiry options. Last Trading Day: 17:00 hours UK time on the first working day
of the month prior to commencement of the underlying forward swap contract. Contract Series:
Front 3 to 7 tradable quarter contracts and 3 whole tradable calendar contracts. All option contracts
expire into the underlying contract of the corresponding month. Business Days: UK business days.
Index Publication: LEBA member firms will submit their marks for each current trading period to
LEBA at the end of every trading day for calculation. The marks will then be averaged and an Index
of that average published.
LEBA will endeavour to publish the Indexes at 18:30 London time on the London business day of the
trading day, and may publish the Indexes on the LEBA website on or after that time. However, LEBA
does not guarantee to be able to publish the data by this time. LEBA will not publish on days that
are not trading days, but will publish the Index on the next London business day. Last Trading Day:
17:00 hours UK time on the first working day of the month prior to commencement of the
underlying forward swap contract.
LEBA European Gas Pricing Indices
The LEBA European Gas Pricing Indices were introduced in June 2006 with the daily calculation of the
TTF day ahead and weekend indices. CEGH, NCG, GPI, Peg North, PEG South, PSV and Zeebrugge
were subsequently added. The LEBA European Gas Pricing Indices are the weighted average day
ahead and weekend trades transacted through LEBA members. For full details of each aspect of the
indices, please see the respective specifications below.
Contributing Brokers: GFI Brokers Ltd, ICAP Energy, Marex Spectron Ltd, Tradition Financial Services
Ltd, Tullett Prebon Energy
LEBA Zeebrugge Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00 and 17:00 hours
London time each day. The Index values gas trades for delivery on the day, or days in the case of
weekends, following the deal date (Trade Day). The delivery day is the Index day. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 08:00 and 17:00 hours London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:20:00 hours
and 16:30:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:20:00 hours and 16:30:00 hours
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London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Month Ahead Index: The Month Ahead Index is calculated using a volume-based, weighted average
of all Month- ahead trades executed in London by contributing brokers between 08:00 hours and
17:00 hours London time each day. The Index values gas trades for delivery within the month
following the deal date (Trade Day). The delivery month is the Index month. In the calculation of
the Index, previous business day convention shall apply.
Trades to be included in the Index: LEBA Zeebrugge Indexes: For a trade to be included in the Index it
must occur on a trading day between 08:00 and 17:00 London time, on the trade date. If other
delivery dates become liquid then these also will be calculated in addition to the dates above. For
the purposes of these Indexes, trading days are every day except Saturday, Sunday, New Years Day,
Good Friday, Easter Monday, Christmas Day and Boxing Day.
LEBA TTF Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00 and 17:00 hours
London time each day. The Index values gas trades for delivery on the day, or days in the case of
weekends, following the deal date (Trade Day). The delivery day is the Index day. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 08:00 and 17:00 hours London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:20:00 hours
and 16:30:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:20:00 hours and 16:30:00 hours
London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Month Ahead Index: The Month Ahead Index is calculated using a volume-based, weighted average
of all Month- ahead trades executed in London by contributing brokers between 08:00 hours and
17:00 hours London time each day. The Index values gas trades for delivery within the month
following the deal date (Trade Day). The delivery month is the Index month. In the calculation of
the Index, previous business day convention shall apply.
Trades to be included in the Index: LEBA TTF Indexes: For a trade to be included in the Index it must
occur on a trading day between 08:00 and 17:00 London time, on the trade date. If other delivery
dates become liquid then these also will be calculated in addition to the dates above. For the
purposes of these Indexes, trading days are every day except Saturday, Sunday, New Years Day,
Good Friday, Easter Monday, Christmas Day and Boxing Day.
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LEBA NCG Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00 and 17:00 hours
London time each day. The Index values gas trades for delivery on the business day, or days in the
case of weekends, following the deal date (Trade Day). The delivery day is the Index day. In the
Index, weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 08:00 and 17:00 hours London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:10:00 hours
and 16:20:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:10:00 hours and 16:20:00 hours
London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Month Ahead Index: The Month Ahead Index is calculated using a volume-based, weighted average
of all Month- ahead trades executed in London by contributing brokers between 08:00 hours and
17:00 hours London time each day. The Index values gas trades for delivery within the month
following the deal date (Trade Day). The delivery month is the Index month. In the calculation of
the Index, previous business day convention shall apply
Trades to be included in the Index: LEBA NCG Index: For a trade to be included in the Index it must
occur on a trading day between 08:00 and 17:00 London time, on the trade date. All trades,
including Private and Confidential Trades (P&C), will be included in the Index. If other delivery dates
become liquid then these also will be calculated in addition to the dates above. For the purposes of
these Indexes, trading days are every day except Saturday, Sunday, New Years Day, Good Friday,
Easter Monday, Christmas Day and Boxing Day.
LEBA GPI Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00hrs and 17:00hrs
London time each day. The Index values gas trades for delivery on the day, or days in the case of
weekends, following the deal date (Trade Day). The delivery day is the Index day. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 08:00hrs and 17:00hrs London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:00:00 hours
and 16:10:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
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In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:00:00 hours and 16:10:00 hours
London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Trades to be included in the Index: LEBA GPI Index: For a trade to be included in the Index it must
occur on a trading day between 08:00 and 17:00 London time, on the trade date. All trades,
including Private and Confidential Trades (P&C), will be included in the Index. If other delivery dates
become liquid then these also will be calculated in addition to the dates above. For the purposes of
these Indexes, trading days are every day except Saturday, Sunday, New Years Day, Good Friday,
Easter Monday, Christmas Day and Boxing Day.
LEBA CEGH Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00hrs and 17:00hrs
London time each day. The Index values gas trades for delivery on the day, or days in the case of
weekends, following the deal date (Trade Day). The delivery day is the Index day. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 08:00hrs and 17:00hrs London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:10:00 hours
and 16:20:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:10:00 hours and 16:20:00 hours
London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Trades to be included in the Index: LEBA CEGH Index: For a trade to be included in the Index it must
occur on a trading day between 08:00 and 17:00 London time, on the trade date. All trades,
including Private and Confidential Trades (P&C), will be included in the Index. If other delivery dates
become liquid then these also will be calculated in addition to the dates above. For the purposes of
these Indexes, trading days are every day except Saturday, Sunday, New Years Day, Good Friday,
Easter Monday, Christmas Day and Boxing Day.
LEBA PEG North Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00hrs and 17:00hrs
London time each day. The Index values gas trades for delivery on the day, or days in the case of
weekends, following the deal date (Trade Day). The delivery day is the Index day. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
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executed in London by contributing brokers between 08:00hrs and 17:00hrs London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:10:00 hours
and 16:20:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:10:00 hours and 16:20:00 hours
London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Trades to be included in the Index: LEBA PEG North Index: For a trade to be included in the Index it
must occur on a trading day between 08:00 and 17:00 London time, on the trade date. All trades,
including Private and Confidential Trades (P&C), will be included in the Index. If other delivery dates
become liquid then these also will be calculated in addition to the dates above. For the purposes of
these Indexes, trading days are every day except Saturday, Sunday, New Years Day, Good Friday,
Easter Monday, Christmas Day and Boxing Day.
LEBA PEG South Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00hrs and 17:00hrs
London time each day. The Index values gas trades for delivery on the day, or days in the case of
weekends, following the deal date (Trade Day). The delivery day is the Index day. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 08:00hrs and 17:00hrs London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:20:00 hours
and 16:30:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:20:00 hours and 16:30:00 hours
London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Month Ahead Index: The Month Ahead Index is calculated using a volume-based, weighted average
of all Month- ahead trades executed in London by contributing brokers between 08:00 hours and
17:00 hours London time each day. The Index values gas trades for delivery within the month
following the deal date (Trade Day). The delivery month is the Index month. In the calculation of
the Index, previous business day convention shall apply.
Trades to be included in the Index: LEBA PEG South Index: For a trade to be included in the Index it
must occur on a trading day between 08:00 and 17:00 London time, on the trade date. If other
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delivery dates become liquid then these also will be calculated in addition to the dates above. For
the purposes of these Indexes, trading days are every day except Saturday, Sunday, New Years Day,
Good Friday, Easter Monday, Christmas Day and Boxing Day.
LEBA PSV Pricing Index: Price Calculation Methodology
Day-ahead Index: The Day-ahead Index is calculated using a volume-based, weighted average of all
Day-ahead trades executed in London by contributing brokers between 08:00 and 17:00 hours
London time each day. The Index values gas trades for delivery on the day, or days in the case of
weekends, following the deal date (Trade Day). The delivery day is the Index day. In the Index,
weekends shall be calculated using a volume-based, weighted average of all weekend trades
executed in London by contributing brokers between 08:00 and 17:00 hours London time on the
previous business day. In the calculation of the Index, previous business day convention shall apply.
Day-ahead Window Index: The Day-ahead Index is calculated using a volume-based, weighted
average of all Day-ahead trades executed in London by contributing brokers between 16:20:00 hours
and 16:30:00 hours London time each day. The Index values gas trades for delivery on the day, or
days in the case of weekends, following the deal date (Trade Day). The delivery day is the Index day.
In the Index, weekends shall be calculated using a volume-based, weighted average of all weekend
trades executed in London by contributing brokers between 16:20:00 hours and 16:30:00 hours
London time on the previous business day. In the calculation of the Index, previous business day
convention shall apply.
Month Ahead Index: The Month Ahead Index is calculated using a volume-based, weighted average
of all Month- ahead trades executed in London by contributing brokers between 08:00 hours and
17:00 hours London time each day. The Index values gas trades for delivery within the month
following the deal date (Trade Day). The delivery month is the Index month. In the calculation of
the Index, previous business day convention shall apply.
Trades to be included in the Index: LEBA PSV Indexes: For a trade to be included in the Index it must
occur on a trading day between 08:00 and 17:00 London time, on the trade date. If other delivery
dates become liquid then these also will be calculated in addition to the dates above. For the
purposes of these Indexes, trading days are every day except Saturday, Sunday, New Years Day,
Good Friday, Easter Monday, Christmas Day and Boxing Day.
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Annex 3; WMBA Reply to Wheatley Review

Issues and failings with LIBOR
o Do you agree with our analysis of the issues and failings of LIBOR?
i.
The WMBA agrees with the issues identified in the discussion paper.
We agree that LIBOR has been and continues to be impacted by concerns around counterparty
credit risk within the banking system. We note also that uncertainties as to both the definitions
of the metric and objective for the fixing have been greatly magnified due to the widespread
utilisation of LIBOR in respect of the great notional amount of contracts (c. ~ $300 Trn) that
reference the set of published rates. WMBA member firms have indeed borne close witness to
the absence of any meaningful flows, even in the major currency pairs with any maturities
greater than one week. Therefore the premise of a purely transactions based set of
submissions for inter-bank unsecured lending is impossible in times of market stress and
dislocation and will necessarily need to be accommodated by expert judgement.
The breadth of users and the multiple contributors ought to lead towards a self-regulating
tendency for such a product and consequently should induce a reputation resilience given the
proven efficiency of peer review in many systems such as BBA-LIBOR. However, the very
transparent exposure of implied credit status within the quantum of the submission has instead
rather mitigated any such benefits. Indeed, increased anonymity with respect to the
publication of individual quotes is widely considered a more efficient direction to move the
process. That is, giving up on the concept of peer review entirely.
The WMBA is mindful that an incentive can be present amongst individuals holding positions
with periodic LIBOR related resets and fixings such that they may seek to influence the LIBOR
setters within either their own institution or indeed others. It is usual practice when discovering
market liquidity and price for a market maker to request quotes from brokers, so we
understand that the intermediary function plays a role in the price and volume discovery and
transparency processes. This is why strong codes of conduct, notably the NIPS Code, are agreed
and adhered to by the members of the association.
The ongoing credibility of LIBOR is of paramount importance and therefore we agree that
changes need to be made relating to both the governance and controls both within the
contributing banks and the organisation that oversees the framework. We further understand
the legal implications that any fundamental changes may create in respect of the great amount
of outstanding contracts. The WMBA does, however, encourage the continued use of Codes of
Conduct and Conduct regulation and supervision in respect of those codes as opposed to a
more legal recourse. This is primarily since the adherence to codes may cover all products and
all jurisdictions so long as the key individuals are acting in the UK. We would reiterate that
better supervision of authorised individuals and the strengthening of internal controls and
procedures within permissioned and regulated firms is a far more efficient way to ensure good
conduct.
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Strengthening LIBOR
o
o
o
o
o
o
o
Can LIBOR be strengthened is such a way that it can remain a credible benchmark?
Could a hybrid methodology for calculating LIBOR work effectively?
Is an alternative governance body for LIBOR required in the short term?
Should the setting of and/or the submission to LIBOR be regulated activities?
Should the regulator be provided with specific powers of criminal investigation and
prosecution in relation to attempted manipulation and manipulation of LIBOR?
What role should authorities play in reforming the mechanism and governance of
LIBOR?
Which types of financial contract, if any, would be particularly affected by the risks of a
transition from LIBOR?
Can LIBOR be strengthened is such a way that it can remain a credible benchmark? Could a hybrid
methodology for calculating LIBOR work effectively?
We believe that LIBOR can be strengthened by cutting down the number of publication maturities,
cross referencing market traded prices and enhancing the governance regime.
The outstanding contracts demand at a minimum, the publication of a benchmark rate for the major
currencies in overnight, tom/next, 1 week, 1 month, 3 month, and 6 month maturities. It may,
however, be likely that in most liquid markets the overnight price of unsecured cash deposits will
always be easily referenced by transactions, although holiday and calendar events may nevertheless
still require a contributed benchmarking. The 12 month maturity is a transition point into the fixed
income curve and may be referenced by way of the securities markets. It may well be the case,
however, that both the corporate lending market and the derivatives floating references may still
require a submitted 12 month lending rate.
A reframed LIBOR needs to supply these benchmark fixings in each of the ten currencies in order to
service the financial products markets detailed in the review. As noted in the paper, since these 70
reference points do not all trade liquidly, the methodology of expert estimated submissions will not
be able to be replaced in any utile way.
Therefore it remains paramount that these submissions are underpinned by a robust governance
structure and by reference to market pricing.
The governance structure within the financial institutions may separate the submissions from any
risk taking responsibilities and remove the context of inferring where that self same submitting
institution may be able to raise funds. There may be a need to consider the potential feedback risks
in contributors referencing their own funding costs. In this way the methodology may move closer to
that employed by EBF-Euribor in citing a third party rate and the size of the reporting panels could
be easily increased. Conduct should be closely tied with and referenced to the NIPs code and a
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further mutually agreed code of conduct if deemed necessary. The submitting institutions (and the
collating process) should also be required to cross reference their submissions to the traded OIS
curve applicable to ensure that a constant relationship to that traded rate remains. Where this is
not the case and the relationship is changing, a narrative explanation should be submitted to in
effect produce a “comply or explain” methodology.
One specific idea on using the OIS/SONIA spread as a benchmark would be for each contribution to
make a submission and then sanitise against OIS/ SONIA Spread to ensure accuracy. Further, if the
cleared OIS derivative is referenced then credit adjusted issues are removed.
In this way the submitted benchmark prices become a “hybrid” between expert assessment and
market pricing.
Is an alternative governance body for LIBOR required in the short term?
We agree that the governance structure of LIBOR requires strengthening to deliver increased
independence, and more transparency. However, the WMBA does not believe that a new,
alternative body to BBA-LIBOR is required, nor that the Bank of England itself should take over the
executive role as opposed to one of oversight.
The Financial Services Bill bestows on the Bank of England an enhanced prudential regulation role
which will in itself confer a heightened degree of supervision by both the FX&MM and the prudential
committee. The WMBA considers that a sub-committee of the FX&MM should be created with
broader participation and a mandate to supervise and report on the quantum, integrity and
efficiency of the benchmarking of LIBOR.
The role of a regulatory body is to provide oversight and supervision; this is better done from
outside than inside and will therefore militate against the authorities taking over the governance
role. Indeed the continuity of agency avoids any legal difficulties in the referencing of the
benchmarks and also reinforces the notion of learning from mistakes and iterating process towards
optimal structures.
Should the setting of and/or the submission to LIBOR be regulated activities?
The WMBA believes that given the importance of the benchmark produced, the values and quantum
of the prices should be within the bounds of regulatory supervision, but not directly regulated as a
product. LIBOR should not be a regulated product since it is a benchmark, essentially a
conglomeration of opinions, and is not a product.
Conversely, we also closely understand that the efficiency and cross border applicability of a code of
conduct regime far outweighs the clumsiness, costliness and misappropriation of legal frameworks.
Further justification as to why LIBOR should not be a regulated product is that the regulation of
products quickly becomes clumsy, national and rather difficult to adapt to bespoke negotiation and
ongoing evolution. Rather, regulation should apply to market participants through their
authorisation and ongoing supervision since such firms and individuals may be reached globally and
over time periods.
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Therefore we would endorse a code of conduct to be followed in making and collating submissions
which would be supervised under the separate authorisation of individuals within investment firms.
As firms which provide submissions to LIBOR are already regulated by the FSA, this should not
require primary legislative changes, but rather to applying the approved persons regime to be
brought to bear on LIBOR-related activities. We therefore recommend that it is appropriate to
ensure that significant influence over how the firm carries on such activities becomes a “controlled
function” for the purposes of the approved persons regime.
We see little benefit from bringing the LIBOR Manager or members of FX&MM within the scope of
the approved persons regime for this specific purpose. Rather it is the contributors and governance
committee who should be subject to the regulatory scrutiny.
We would concur that consideration needs to be given towards a specific power enabling the
regulator to compel firms to participate in submissions should the view of the oversight committee
be that at any point increased participation in the LIBOR panels is a desirable outcome. As an
alternative to compelling firms to participate, it may be simpler to make contributions a condition of
authorisation as a credit institution (providing all other required criteria are met such as credit
rating, size of balance sheet etc).
On balance, however, we strongly recommend that incentives, such as Basle liquidity or capital
relief, should be preferred to coercion since the latter may only serve to sample a tiered market on
compliance lending or indeed to illustrate guesswork as to where a non-functioning market may be
postulated to execute.
Should the regulator be provided with specific powers of criminal investigation and prosecution in
relation to attempted manipulation and manipulation of LIBOR?
The WMBA does not believe that any specific powers beyond those currently available as criminal
sanctions under the Prevention of Fraud Act. To do otherwise would further complicate the legal
framework and strongly disincentivise the market to provide a utility benchmarking tool.
What role should authorities play in reforming the mechanism and governance of LIBOR?
The WMBA would encourage the authorities to play an active role in creating a supervisory
framework and stipulating standards of governance. Relevant authorities should have a seat on the
oversight committee.
Which types of financial contract, if any, would be particularly affected by the risks of a transition
from LIBOR?
In the phrase "LIBOR contingent contracts" the key word is "contracts". In this case, LIBOR has
always been a consensus concept which, even the best lawyers that the financial markets could
afford we're happy to be written up as "see Telerate page 3750 or Reuters page LIBO". Now it
needs to be defined more clearly. Going forward it is the responsibility of the industry to define
more clearly what exactly the liability to be referenced is and the contingencies around that contract
should the referenced entity cease to function. It is apparent to us that in the current instance the
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fact that the reference entity has ceased to trade due to economic reasons has been the underlying
factor around many of the legal issues arising. This needs to be the responsibility of the contractual
law going forward rather than the voluntary compilers and contributors to an index.
The WMBA has witnessed increased take up of OIS trading and the use of OIS curves in pricing and
valuing Interest Rate Swaps. Therefore this category of derivatives has gained increased importance
and profile which the WMBA and its members are keen to transmit for greater public and regulatory
utility.
Some WMBA members are now using pure electronic bid/ offer prices to generate reference prices.
Such examples include Trad-X, BrokerTek and tpMATCH. As the market moves towards utilising
more electronic venues, continuous transparency around such firm bids and offers will become
more prevalent. Although this pricing may not be based on actual trades, the fact that they are
based on firm bids and offers meaning a banks submitting has to be ready to trade on it, means the
mid is likely to be accurate.
Alternatives to LIBOR
o
o
o
o
o
Are there credible alternative benchmarks that could replace LIBOR’s role in the financial
markets?
Should an alternative benchmark fully replace LIBOR, or should it substitute for LIBOR in
particular circumstances?
Should particular benchmarks be mandated for specific activities?
Over what time period could an alternative to LIBOR be introduced?
What role should authorities play in developing and promoting alternatives to LIBOR?
Are there credible alternative benchmarks that could replace LIBOR’s role in the financial markets?
The WMBA does not believe it to be the case that there are any credible existing benchmarks that
could fulfil the role that LIBOR plays. That is a comprehensive set of benchmarks across the
maturities and across the major currencies.
Rather, the emphasis should be on describing what exactly these benchmarks represent, the
methodology, the transparency and the governance that sit behind them. This, therefore, should
also caveat the degree of heterogeneity, that is the dispersion or risk that surrounds the printed
benchmark.
Evidently the major part of the wholesale banking system, both in Europe and around the world, has
migrated from being essentially a ‘AA’ rated set with only narrow dispersion around this mode; to a
‘BB’ set of firms with a much great degree of dispersion from ‘C’ to ‘A’. Therefore the utility of a
single rate and a contributors’ ability to prescribe it is far more difficult than it has been prior to
2007. Nevertheless it should remain the functional objective of the LIBOR set to describe the rate at
which an average bank operation in that wholesale market may attain funding with simultaneous
publication and common method.
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We say this despite acting as the collating agent and publisher of GBP and EUR OIS indices (SONIA
and EURONIA), a government collateralised interest rate (RONIA) and a great deal of commodity
rates (See annex 1). Whilst these are all indices derived from real trades, we understand that they
can only inform and underpin a uniform and contemporary data set such as LIBOR rather than to
replace them for widespread retail usage. We would, however, stress how referencing explicit
spreads to the three principal traded curves (OIS, Repo, FX_Forward) may help contributors justify
governance around submissions.
Should an alternative benchmark fully replace LIBOR, or should it substitute for LIBOR in particular
circumstances?
As detailed in the answer above, the WMBA does not believe that any alternative benchmark should
completely replace LIBOR. Such an outcome would be far too prescriptive a remedy for the UK
authorities or any other to undertake and would evidently likely incur further and greater difficulties
at a later date which could require ever greater degrees of state intervention into the marketplace.
Rather, the market users are free and very able to select the appropriate benchmarks for their
individual requirements. These may often be traded benchmarks or a combination using
interpolation and other statistical techniques from a bottom up standpoint.
Should particular benchmarks be mandated for specific activities?
The WMBA does not believe that any authority is in the position to mandate particular benchmarks
for specific activities. This would raise questions as to whether authorities are acting in the best
interests of any particular sector or the market as a whole and could not cope with evolution and
innovation. It would also compromise the role of supervisor into that of participant.
Examples of where markets have voluntarily migrated to alternative benchmarks, without the need
for regulatory intervention, include the Oil market’s move from referencing WTI to Brent over the
last decade and the professional Interest Rate Swap market moving from LIBOR discounting to OIS
curves.
Over what time period could an alternative to LIBOR be introduced?
The WMBA currently publishes OIS and Repo indices already which can help to both underpin LIBOR
and be used for specific roles including the discounting of cleared swaps novated into CCPs. We use
collated trades from across the market place and employ volume weighted methodologies (VWAP)
to publish at the immediate closing of the relevant window.
These indices do not form an alternative to the suite of LIBOR products but may provide specific
solutions in individual markets. For instance, SONIA is relevant to banks as they fund every day, but
it is not to a corporate. We would see an ongoing requirement for a LIBOR product set to service the
corporate borrowing and general debt issuance markets, and therefore would not recommend an
alternative to LIBOR be introduced.
What role should authorities play in developing and promoting alternatives to LIBOR?
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The WMBA does not recommend an alternative to LIBOR be introduced.
We do not view the function of supervisory authorities as to carrying out a market innovation and
promotion role, rather to ensure integrity to the stakeholders engaged in financial activities through
supervision and the implementation of regulation.
Potential implications for other benchmarks
o
o
Are there other important markets or benchmarks that could face similar issues to those
identified relating to LIBOR?
Should there be an overarching framework for key international reference rates?
Are there other important markets or benchmarks that could face similar issues to those identified
relating to LIBOR?
The WMBA compiles and publishes an extensive list of interest rate and energy related datae daily
using an aggregated population of trades executed across the market. These are detailed in annex 1.
We would simply point out that due to the methodology employed, neither our OIS, Repo nor
energy indices, are likely to be vulnerable to any of the issues that undermined BBA-LIBOR. Indeed
this immunity allows them to be incorporated in an audit or validating framework to underpin a new
BBA-LIBOR framework.
Beyond such methods, we would note that all indices based upon estimated submissions face
precisely the same risks that apply to LIBOR both in method, submissions and governance. Given the
very large number of such, their importance and their deeply embedded position inside the fabric of
the modern financial market infrastructure, it remains paramount for all stakeholders to work with
that which exists, rather than attempting a radical paradigm change.
Should there be an overarching framework for key international reference rates?
The WMBA strongly supports the idea that IOSCO should set out minimum standards for an
overarching framework for key international reference rates.
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Annex 4; LEBA reply to IOSCO Consultation on PRA’s
London Energy Brokers’ Association response to IOSCO Consultation on the Functioning and
Oversight of Oil Price Reporting Agencies
I
Summary points of LEBA position
o
LEBA believe that in acting as global price assessors and setters, Oil Price Reporting Agencies
(PRAs) need to fall under both a global set of principles and of direct supervision from the
relevant national financial regulator.
LEBA believe that in acting as arrangers of trades in either cash or derivatives, PRAs need to be
established and regulated as authorised venues. In operating the e-Window, Platts appears to
act in the role of a venue.
LEBA strongly recommends that where a PRA coincidentally fulfils the roles of news agency
and editorial; price assessor and setting; and also an execution venue, that suitable
governance and separation are demonstrated such as to mitigate any possibilities of conflicts
of interest arising.
The more pertinent questions to ask in respect of the systemic risks related to the activities of
the PRAs would be:

Is it appropriate for a PRA to have commercial ambitions to operate within the
wholesale execution space?

Are execution activities inconsistent with the pure observation role which a PRA
centrally purports?

Might any of the rules which a PRA enforces in its execution role directly conflict with
the PRA’s own stated mission to report faithfully on trade?

Is it appropriate that a PRA (simply by virtue of being a PRA) be exempted from the full
frame of regulatory and compliance to which all the other execution agents and IDB’s
conform?
The regulated operator of the e-Window as a trading venue remains unclear. We note the
contradiction between the quoted comment by Platts to Financial News in early March of this
year, and that on their website from December 2011.

“All trade execution activity takes place on a platform operated by, and subject to the
trading rules of, the Intercontinental Exchange, which is a regulated body.” (ICE declined
to comment). Of course, ICE supplies technology but does not act as either the
regulated platform or as an SRO to the matching activities. ICE could not intervene in
the matching nor be supervised in respect of market conduct.

Conversely the extract from Platts press release of 07 December 2011 which details that
ICE is not the regulated operator of the e-window platform, “This new agreement
expands the relationship between Platts and ICE. Existing agreements include licenses
to ICE to use Platts’ proprietary market price data in the settlement and clearing of ICE
contracts; use of ICE data by Platts in its forward curves products and services; and use
by Platts of ICE-developed technology that is customized to facilitate the Platts MarketOn-Close price assessment process through Platts eWindow.”
http://www.platts.com/PressReleases/2011/120711
o
o
o
o
II
LEBA and the oil markets
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Most LEBA members are active in the business of arranging trades in oil derivatives and associated
products. They are especially active in arranging dated Brent CFDs and derivatives which use dated
Brent as a floating leg. They act as “Limited License/Limited Activity” firms, regulated by the FSA via
ARROW, ICAAP and SREP methodologies. Together and on a global basis, these firms are responsible
for arranging the vast majority of off-exchange and intermediated transactions across the oil
markets. These markets would be characterised by us as largely traded off exchange but
substantially cleared. BFOE contracts for difference are traded bilaterally under the SUKO90
contract. The LEBA member firms are all keenly aware that as arrangers of trades, they need to
ensure that at no stage are they ever considered to act, by market participants, as estimators of
price or publishers of advice.
The IOSCO consultation paper concerns the activities of PRAs, of which two are most significant Argus and Platts - who are not identified in the paper (indeed Platts is mentioned only in footnote 15
on page 22). Many commercial contracts for physical oil, perhaps the majority, are based on
assessments produced by one or both of these two companies and have been for many years. LEBA
would note here that the members all recognise and appreciate the undeniably vital and valuable
role that Platts have played in creating and maintaining both liquidity and integrity in the Brent Oil
markets, particularly over the course of the last decade. Indeed it is testament that these markets
now act as the de facto benchmark for global energy markets. We appreciate that both Platts and
Argus have always been at pains to make their methodology clear and consistent. Further, both
companies are fiercely editorially independent.
As with many global financial markets, the price of physical oil contracts is very much dependent on
the value of oil derivatives where a liquid price formation dynamic is present. We concur with Dr.
Elizabeth Bossley’s comments in February 2012 Oxford Energy Forum, reiterating that the dated
Brent marker as assessed by Platts is the predominant price setting. Christophe Barret, writing in
the same publication demonstrates how Brent futures and forward prices remain very close to each
other and the former converge onto the latter at the close of the 16.30 window. For instance, a
cargo of crude oil may be sold on the basis of Platts Dated Brent 5 days around the Bill of Lading,
plus a premium. Platts cannot make an assessment of the basic value of that contract unless they
know the value of the derivative of that contract. Platts have used the Brent CFD derivative market
to assess their crude oil assessments for ten years. In a similar way, the value of just about every bit
of the oil barrel is influenced by nearby swap values. Barrett goes on to state that PRAs have
evolved from price reporters to trade organisers (in an attempt to avoid price manipulations).
Oil futures contracts which expire every month by means of cash settlement, rather than physical
delivery (ICE Brent is a good example) are to a greater or lesser extent dependent on one or both of
these agencies’ assessments.
In the last ten years, Platts has developed its assessment process in two major ways.
a.
Firstly, the time of the various assessment windows around the world have been changed to
ensure participation from major market participants; for instance, the European crude oil
assessment has been moved from after the Futures market close to 1630 London time,
contemporaneous with European product assessments. For the first time ever, the industry
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b.
has had the opportunity to look at snapshot prices of crude oils and the whole spectrum of
refined products, allowing proper margin calculations.
Secondly, Platts has moved from taking an average price over a short period towards a fixed
point at the end of the window, a methodology it calls “Market on Close”.
To participate in the Platts price assessment process, participants must conform to a precise set of
behavioural rules. “Behaving” means demonstrating to Platts that your bids or offers are genuine
and available for transaction. In this way, Platts has taken on the additional mantle of market
regulator of both physical oil and nearby oil derivatives.
To assist in ensuring correct market behaviour according to its rules, and to provide a timely audit of
bids, offers and transactions, Platts has introduced an “e-Window”, an electronic ICE-based
platform on which deals are transacted every day as part of its assessment process. The e-Window
includes not just derivatives Platts needs to evaluate for assessing the price of physical oil but also
other forward derivatives such as longer dated swaps which have no connection to their reporting
business. In this way, Platts has strayed into the world of arranging transactions in oil derivatives financial instruments.
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Annex 5
WMBA Reply to ECON Consultation on LIBOR by Arlene McCarthy
London, 17th September 2012
EUROPEAN PARLIAMENT COMMITTEE ON ECONOMIC AND MONETARY AFFAIRS
Questionnaire for the public consultation on
MARKET MANIPULATION: LESSONS AND REFORM POST LIBOR/EURIBOR
by ECON Vice President and Rapporteur – Arlene McCarthy MEP
Response of Wholesale Market Brokers Association and London Energy Brokers Association
By email to econ-secretariat@europarl.europa.eu
Key Points
 We agree that LIBOR remains very important to the ongoing functioning of financial markets
and therefore needs strengthened integrity.
 We believe that the answers lie mainly in the conduct of business requirements and
supervision.
 LIBOR should not be a regulated product; rather regulation should apply to market participants
through their authorisation and ongoing supervision.
 The Bank of England should be the supervisor to LIBOR but not the calculation agent since both
roles are not complimentary.
 Given the voluntary basis of submissions, criminal sanctions are not appropriate given the
stated objectives.
 Incentives encouraging more liquid use of unsecured lending markets, using Basle relief, are a
more appropriate way towards repair.
 In the phrase "LIBOR contingent contracts" the key word is "contracts". Going forward, it is
the responsibility of the industry to define more clearly what exactly constitutes the reference
entity and the contingencies around that contract should that variable cease to function.
 We understand the imperative requirement for i) the need for a real funding benchmark that
can be trusted and relevant to borrowers in all sections in the economy and which reflects the
cost of funds to the lenders; and ii) a benchmark pricing and revaluation curve for all other
derivative and off-balance sheet exposures.
 Aggregated and averaged daily series of traded rates such as OIS, compiled by the WMBA
across all relevant venues can provide a tool to inform a benchmark curve to service market
users.
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The members of the Wholesale Market Brokers Association and London Energy Brokers Association
(together “WMBA”) welcome this opportunity to respond to the questionnaire issued on behalf of
the European Parliament.
Given the very important role played by financial benchmarks in the route-map towards economic
recovery and the G20 global growth agenda in providing a tool for investors, issuers and corporate
firms to access markets the WMBA welcomes this opportunity for comment. We do so in the context
of thorough and wide ranging consultations currently or recently issued by the Wheatley Review, the
European Commission and the IOSCO Commodity Committee together with the recently announced
IOSCO high level task force. We therefore urge that none of these exercises be taken individually and
so in answering this we layout the responses to both the Wheatley Review and IOSCO in two
annexes.
To put our response into context, WMBA member firms are global Wholesale Market Brokers
providing, inter-alia, OTC intermediation services in the cash and derivative Rate, Credit, Foreign
Exchange, Equity and Commodity marketplaces. Our members collectively have a physical presence
in all major financial capitals globally as well as many secondary financial centres and provide
intermediation services to, among others, customers in all 27 EU member states. Furthermore,
WMBA members firms arrange the vast majority of OTC derivative transactions executed daily
around the world.
WMBA member firms are limited activity firms that act as non risk-taking intermediaries with a
principal client base made up of global banks, primary dealers, leading regional banks, government
agencies, asset managers, oil companies and energy generators/utilities. Our primary function is to
source, develop, manage and publicise liquidity pools for our customers to assist them in their global
risk mitigation processes.
The WMBA considers it appropriate to reply as its members are active in arranging liquidity and
executing the majority of trades across all the relevant markets including Cash Deposits, Money
Market and Interest Rate Swaps (IRS). Additionally the WMBA collates and publishes a large set of
indices daily in overnight index swaps (OIS), repo and energy related markets that for the settlement
price to a significant part of the OTC markets and also as the basis for variation margin for a number
of CCPs. These indices are based on actual bids/ offers and traded prices.
In short, we believe that LIBOR as a daily benchmark with a large outstanding notional amount of
contracts which reference it, is of great importance and needs to be underpinned and imbued with
greater integrity. Traded markets, may inform a benchmark curve taking reference from unsecured
OIS, secured and collateralised repo markets, short term government securities and implied interest
rates from FX forwards. Each of these has its own benefits and drawbacks such as sparse liquidity
nodes, implied basis, selective market participation and credit risks. However, taken collectively
within a framework of good governance they may inform and audit the daily LIBOR benchmarking
process.
WMBA member firms look forward to being able to expand on these points during future
conversations with the European Parliament. Further, in recent months other global regulators and
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policy makers have found it beneficial to participate in on-site visits to WMBA member firms in order
to explore the range and methodology of our voice, hybrid and electronic brokerage services for
global OTC cash and derivatives marketplaces. We therefore extend an open invitation to all
members of the ECON committee to visit any of our members’ operations if that would be
deemed helpful to your assessments.
TOPIC 1: TACKLING THE CULTURE OF MANIPULATION
Q1: How widespread is the problem? Are there other financial instruments, markets and/or
benchmarks vulnerable to potential manipulation?
What action should be taken to ensure these forms of market abuse are tackled?
The WMBA was surprised by the revelations around the ‘gaming’ of the Libor submissions in the
period up to 2007, as we under were just about all other market participants. The difficulties in
enumerating the Libor rates from the financial crisis onwards when the underlying unsecured
lending markets between banks had ceased to exist was not a surprise. Evidently it is difficult to
place estimates upon a market that does not exist.
Of more concrete note concerning the question of how widespread the nature of this problem may
have been or even may be now could be evidenced from the Suspicious Transaction Reporting
Regime and consequent investigations led by the supervisory authorities. In this regard we note that
in respect of the activities and market monitoring by WMBA members firms virtually no suspicious
activity has been evidenced since the regime came into force. We may therefore surmise that this
activity around Libor submissions was isolated and due to the faster evolution of the market size in
that particular period of time up to the financial crisis rather than a more widespread problem.
In the evolution of market conduct, regulation and monitoring post 2007, it would appear that issues
around the attempted manipulation of market indices is not at all widespread, That is , there are few
other financial instruments, markets and/or benchmarks vulnerable to potential manipulation due
to the widespread straight through processing and market monitoring now ubiquitous across all
markets. We do however note the work being done by IOSCO in the field of oil market Price
Assessments and attach our reply to the IOSCO consultation as an annex herewith.
The WMBA comments to the Wheatley Review are also attached, wherein the recommended
courses of action revolve around a more prescriptive code of conduct around submissions and
increased monitoring of adherence to that code by the relevant supervisory authorities. Given our
answer and evidence above, the Market abuse Framework in MAD2 and MAR added to the market
conduct framework in MIFID2 and MIFIR will cement the remedies into law.
Q2: What action should be taken to ensure the integrity and quality of all benchmarks, financial
instruments and markets?
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a.
Do both benchmarks and those entities that input into the setting of the benchmark need to
be regulated?
b.
Are traded rates as opposed to offered rates a better basis for input? Or should a 'hybrid'
approach be adopted?
c.
Should the posters of rates be granted anonymity? What would be the potential downside
to such an approach? Would such a status add or diminish the integrity of prices?
d.
What kind of powers should regulators of the financial sector be given to set and introduce
criminal sanctions for attempted or actual manipulation of benchmarks?
The WMBA has laid out the preferred courses of actions in our response to the Wheatley Review in
Annex 1. Essentially the Code of Conduct around the submission of estimated prices and of trade
reporting can be enforced within the consolidated supervision of financial and other participating
firms. This supervision should be done in reference to the ongoing importance of systemic important
benchmarks.
We note that as the unsecured markets became less liquid, a hybrid approach was indeed adopted
by the LiBOR framework. Either using traded data or market estimations come with attendant
underlying caveats, none of which could be solved with regulation. It is likely a flexibility of approach
is required.
Anonymity in the submission of either traded or estimated rates is indeed one solution, although we
would consider it better for submitting institutions to post indications on third party market rates
which could be more transparently posted and therefore continuously submitted to peer review.
A more definite solution for LiBOR would be found in the reestablishment of liquid and utile
unsecured lending markets between authorised financial institutions. This is discussed in our
response to the Wheatley Review could be done via incentives embedded into the Basle
requirements as interpreted by the CRD.
We further briefly note that in respect of wider financial indices, the open access to markets and
infrastructures will improve post trade transparency across all market segments. We would however
draw attention to the intellectual property arguments around key European equity indices currently
in debate and request greater open access to all benchmarks.
We note that regulators of the financial sector currently have firm and wide ranging powers
surrounding market model, supervision, trade-reporting and market abuse. These are set to be
enhanced by the regulations currently passing into legislation. No further powers are required nor
sought.
TOPIC 2: ESTABLISHING INTEGRITY AND TRUST POST LIBOR/EURIBOR
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Q3: What specific measures should be taken at European/Global level to improve investor
confidence? How can cooperation between global regulators be improved?
How can legislators ensure continuity between existing contracts which rely on Libor/Euribor
(some $500 trillion of contracts) and future contracts?
We refer again to e preferred courses of actions in our response to the Wheatley Review in Annex 1.
Specific measures to be taken lie in the greater attention of the FSB and IOSCO to the importance of
benchmarks and indices. We note that IOSCO have launched a taskforce and believe that the
establishment of IOSCO led standards and principles will improve investor confidence and regulatory
recognition and harmony at a global level.
The legal form of Libor evidently needs to continue to ensure stability in existing contract law. We
would refer to the comments by ISDA in response to the Wheatley Review for a detailed explanation
of this.
Q4: What specific measures could be taken to enhance transparency and information quality in
the financial sector?
The establishment of global Trade Repositories as detailed in the EMIR legislation will enhance
transparency and information quality in the financial sector. Key here is the development, currently
underway and well advanced, of Legal Entity Identifiers (LEI) and Unique Product or Swap Identifiers
(UPI, USI).
We note the increased scope and automation of regulatory resporting currently underway under
current legislative initiatives both in Europe and other countries. The creation of reporting agents
detailed in MiFID2 should aid the transmission of trades to these repositories. We understand that
there is no request for any further transactional information from regulators.
Q5: What future action could be taken to achieve better governance in order to prevent future
manipulation and establish integrity, trust and fairness in the financial services industry?
As already outlined, the WMBA believes that the answers towards better governance lie mainly in
the explicit adherence to conduct of business requirements, Codes of Conduct and supervision of
these by relevant authorities.
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Annex 1
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Potential implications for other benchmarks
o
o
Are there other important markets or benchmarks that could face similar issues to those
identified relating to LIBOR?
Should there be an overarching framework for key international reference rates?
Are there other important markets or benchmarks that could face similar issues to those identified
relating to LIBOR?
The WMBA compiles and publishes an extensive list of interest rate and energy related datae daily
using an aggregated population of trades executed across the market. These are detailed in annex 1.
We would simply point out that due to the methodology employed, neither our OIS, Repo nor
energy indices, are likely to be vulnerable to any of the issues that undermined BBA-LIBOR. Indeed
this immunity allows them to be incorporated in an audit or validating framework to underpin a new
BBA-LIBOR framework.
Beyond such methods, we would note that all indices based upon estimated submissions face
precisely the same risks that apply to LIBOR both in method, submissions and governance. Given the
very large number of such, their importance and their deeply embedded position inside the fabric of
the modern financial market infrastructure, it remains paramount for all stakeholders to work with
that which exists, rather than attempting a radical paradigm change.
Should there be an overarching framework for key international reference rates?
The WMBA strongly supports the idea that IOSCO should set out minimum standards for an
overarching framework for key international reference rates.
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