IOSCO CONSULTATION FINANCIAL BENCHMARKS PUBLIC COMMENT ON FINANCIAL BENCHMARKS

Transcription

1 IOSCO CONSULTATION FINANCIAL BENCHMARKS PUBLIC COMMENT ON FINANCIAL BENCHMARKS General Comments: Standard Chartered Bank welcomes the opportunity to participate in and provide comments to this consultation. In addition Standard Chartered Bank generally welcomes all proposals that seek to re-establish confidence in the benchmark index setting processes globally. Standard Chartered Bank believes that given the global interest in Benchmarks and the broad range of different Benchmarks to which this Consultation Report may be applicable, it is vital that the various global agencies take a coordinated and consistent approach to both the consultation processes and to any regulatory developments that result from those processes. In addition there should be an expectation that any rules or principles which are developed should be applied in an appropriate and meaningful way, and that the implementation of any rules takes into account the size and level of development of particular markets concerned. Finally Standard Chartered Bank agrees with the clear demarcation between Benchmarks which are calculated by reference to transactional data, those which are based on committed quotes or auctions, and those which are opinion based or discretionary. Again any regulatory developments in this area should be mindful of these distinctions. Chapter 1 Scope 1. Do you agree with the scope of the report and intended audience? Are there other Benchmarks or stakeholders that have idiosyncrasies that should place them outside of the scope of the report? Please describe each Benchmark or stakeholder and the idiosyncrasies that you identify and the reasons why in your view the Benchmark or stakeholder should be placed outside of the scope of the report. Response: No specific comment. Chapter 2 Benchmark design 2. Do you agree that the design of a Benchmark should clearly reflect the key characteristics of the underlying interest it seeks to measure? Response: Yes Quality and integrity of Methodologies 3. What measures should Administrators take to ensure the integrity of information used in Benchmarking-setting and that the data is bona fide? Please highlight any additional measures required where Benchmarks are survey based. Please also comment on each of the factors identified in the discussion on the vulnerability of data inputs such as voluntary submission, discretion exercised by Administrators. Are these measures adequately reflected in the discussion of roles and responsibilities of the Administrator discussed in section E? Response: Standard Chartered Bank believes that Administrators should implement the following measures: Benchmarks should be based on actual transactional data to the fullest extent possible. Where Benchmarks are simply opinion based or discretionary, the submissions should be required to be clearly reflective of the underlying market. Where a Benchmark is opinion based or discretionary, the Administrator should be required to provide a clear justification for not using transactional data or committed quotes. Page 1 of 11

2 Standard Chartered Bank agrees with the view expressed in the GFMA s Principles for Financial Benchmarks 1 that the overall responsibility for the Benchmark and its associated processes lies with the sponsor or owner of that Benchmark. All Benchmark Administrators should be required to set out in appropriate documentation, a clear definition of the Benchmark, including a description of the calculation methodology. Where the specific calculation methodology is sensitive and proprietary, a high level summary of the methodology may be acceptable, however this must be sufficiently detailed to allow users of the Benchmark to make an assessment of the credibility of the Benchmark. All Benchmark Administrators should be required to set out in appropriate documentation, clear guidelines for submissions, including roles and responsibilities of all relevant parties. Submitters to Benchmarks should have representation on the appropriate governance or oversight committees for those Benchmarks. All Benchmark Administrators should be required to implement an appropriate panel of Submitters such that the submitting parties are adequately reflective of the underlying market. Where a Benchmark is opinion based or discretionary there should be a requirement on the Administrator to conduct monitoring of submissions to ensure the ongoing reliability and integrity of the Benchmark. 4. What measures should Submitters implement to ensure the integrity of information provided to Administrators? Are these measures adequately reflected in the discussion of a code of conduct for Submitters discussed in section E? In particular, should Submitters submit all input data and not a selection of such data so as to maximise the representation of the underlying market? Please comment on any practical issues that compliance with such an approach may give rise to. Response: Standard Chartered Bank believes that Submitters should adopt the following measures: Formal internal guidance or principles governing how submissions should be made to Benchmarks. Independent monitoring of submissions to ensure that submissions are based on actual transactional data, that data is independently observable and verifiable, and that any material deviations from the final published Benchmark rate can be adequately explained. All individuals involved in submissions should be internally authorised and adequately trained and supervised. A programme of additional assurance checks, monitoring and audits, including by the internal Compliance and Audit functions. In addition Standard Chartered Bank should like to note the following challenges: The nature of the risks which arise varies significantly between Benchmarks which are based on actual transactional data and those which are opinion based or discretionary. For transaction based Benchmarks the nature of the actual submission process is quite different from those which are discretionary, and the controls noted above should be primarily focussed on opinion based submission processes. For any independent monitoring process, the amount of data that requires analysis can be considerable. For example the number of different Benchmarks must be multiplied by the different currencies and tenors, and this can quickly amount to a very significant amount of data to be processed and analysed. Standard Chartered Bank notes that in relation to benchmark interest rates (e.g. LIBOR) regulators are recommending that the Benchmark submitters be physically separated from traders who are primarily involved in trading interest rate derivatives. While Standard Chartered Bank supports this general principle, Standard Chartered Bank notes that in certain instances this will present challenges in practical implementation. For example in smaller or less developed markets there may be very few staff within dealing rooms such that physical separation is not practical. In addition for non-interest rate Benchmarks the Submitter and the trader primarily trading the derivatives, may be on the same desk or even in some cases be the same individual (for example certain foreign exchange fixings). These practical challenges should be noted and Submitters should be able to adopt a reasonable and risk based approach to this area. 1 Page 2 of 11

3 Transparency of Benchmark methodologies 5. What level of granularity with regard to the transparency of Methodologies would enable users to assess the credibility, representativeness, relevance and suitability of a Benchmark on an on-going basis and its limitations with respect to their intended use? Relevant factors could include; criteria and procedures used to develop the Methodology, type of data used, how data is collected, relative weighting of data used, how and when judgement is used, contingency measures (e.g., methods when transaction data is unavailable etc), publication of information supporting each Benchmark determination, etc. Please provide examples where you consider there are currently significant gaps in the provision of this information. Response: All Benchmarks should adopt a certain level of transparency over their methodology. This transparency should be sufficient to allow the Benchmark to maintain its credibility and to ensure that users of and contributors to the Benchmark can continue to rely on it. Transparency of contingency provisions for episodes of market disruption, illiquidity or other issues 6. What steps should an Administrator take to disclose to Market Participants and other stakeholders the contingency measures it intends to use in conditions of market disruption, illiquidity or other stresses? Response: Benchmark Administrators should be required to publish clear documentation which sets out all relevant information on the Benchmark, including the contingency arrangements in the event of market disruptions. Where applicable this documentation should form part of industry codes of conduct, for example where the Administrator is also an industry association. Transparency over changes to the Methodology 7. What steps should an Administrator take to notify Market Participants of material changes to a Benchmark Methodology (including to Benchmark components) and to take their feedback into account? Response: Where appropriate Benchmark Administrators should be required under local regulations to conduct a formal consultation process with market participants, for any material changes to the methodology of a Benchmark. Where for example a Benchmark is compiled using independently available data and not based on submissions, Administrators should be required to provide reasonable notice of material changes to the Benchmark methodology. 8. How often should the Administrator review the design and definition of the Benchmark to ensure that it remains representative? Response: Standard Chartered Bank believes that such reviews should be no more frequent that annual, unless there has been a material change in market circumstances. Governance 9. The Consultation Report discusses a number of potential conflicts of interest that may arise at the level of the Submitters, between Submitters at different entities, and between Submitters, Administrators and other third parties. Are there other types of conflicts of interest that have not been mentioned that you consider may arise? If so, how best should these conflicts of interest be addressed? Are the measures discussed in the Consultation Report sufficient to address potential conflicts of interests at the level of the Submitters, between Submitters at different entities, and between Submitters, Administrators and other third parties? Response: The potential conflicts of interest discussed in the Consultation Report appear to be comprehensive, however Standard Chartered Bank recommends that any applicable rules or industry Page 3 of 11

4 codes of conduct should include expected behaviours around both the detection of potential conflicts of interest and management of such conflicts which are identified. 10. Do you agree that the Administrator should establish an oversight committee or other body to provide independent scrutiny of all relevant activities and management of conflicts of interest? Please comment if and why any different approaches might be appropriate for different kinds of Benchmarks. What is the minimum level of independent representation this committee or body should include? Response: Yes, Standard Chartered Bank agrees that a Benchmark Administrator should establish an oversight committee to provide independent scrutiny of relevant activities and management of conflicts of interest. Submitters to the Benchmark should be represented on that committee but should not make up the majority of representation. In addition other interested parties, such as users of the Benchmark, as well as suitably qualified and independent representatives, including representatives of central banks, national regulators or industry associations, should also be included. Accountability 11. Should the Submitters establish accountability procedures to assess their compliance with operational standards and scrutiny of Benchmark submissions? Response: Standard Chartered Bank believes that Submitters should be required to implement accountability controls in relation to their submissions. These controls should include self assessment controls by the function responsible for the submissions themselves, supplemented by independent monitoring by other control functions including the Compliance and Audit functions. 12. Are the measures discussed in the Consultation Report (e.g. Audit Trail, external audits and requirement for regulatory cooperation) sufficient to ensure the accountability of Submitters? Should additional mechanisms be considered? Response: Yes, however Standard Chartered Bank notes and supports the proposals by the UK FSA to formally create a regulated activity of benchmark submission. In relation to the concept of benchmark submission as a regulated activity Standard Chartered Bank believes that any requirement to individually authorise staff involved in benchmark submission should be restricted to those benchmarks based on committed quotes or opinion / discretionary submissions, and not for transactional data based benchmarks. Standard Chartered Bank does not believe it would be appropriate to require non-front office staff to be authorised simply because they are involved in some form of transactional data reporting process which ultimately results in the creation of a Benchmark. 13. How frequently should Submitters be subject to audits? Should these be internal or external audits? Response: Standard Chartered Bank believes that a risk based approach to audits should be adopted. Standard Chartered Bank further believes that submitters should be subject to audits no more frequently than annually and that this should alternate between internal and external audits. In addition a distinction should be drawn between audits and compliance reviews which would supplement formal audits and be more ad hoc in nature. Accountability of the Administrator 14. Are the measures discussed in the Consultation Report (e.g., complaints process, Audit Trail, external audits and requirement for regulatory cooperation) sufficient to ensure accountability of the Administrator? Should additional mechanisms be considered? Response: Yes, Standard Chartered Bank believes that the measures discussed in the Consultation Report are broadly sufficient to ensure accountability of the Administrator. The oversight committee Page 4 of 11

5 discussed in response to question 10 above should be tasked with ensuring the continued adequacy of those measures. 15. If recommended, how frequently should Administrators be subject to audits? Should these be internal or external audits? Response: In line with the response to question 13 above, Standard Chartered Bank believes that a risk based approach should be adopted and that the frequency of such audits should be commensurate and at least no less frequent than with audits on Submitters. It should be noted that as Submitters are more likely to be already regulated institutions, the internal audit and compliance functions are likely to be more established than at some firms which would operate as Administrators, therefore there may be a greater requirement for external audits at Administrators. Finally the results of any internal or external audits should be provided to the oversight committee referenced in question 10 above. 16. Is public self-certification of compliance with industry standards or an industry code another useful measure to support accountability? This approach might also contemplate explanation of why compliance may not have occurred. If so, what self-certification requirements would make this approach most reliable and useful to support market integrity. Response: Standard Chartered Bank does not believe that self-certification of compliance alone has particular value. Rather Standard Chartered Bank believes that having a clear and consistent set of minimum standards which are applicable to Benchmarks and their submissions, and which are auditable, is of the greatest value. In addition Standard Chartered Bank notes the FSA proposals to make both administration of and submission to Benchmarks, a regulated activity, which will also provide greater credibility and integrity, because as regulated activities Benchmark administration and submission would also be subject to supervisory oversight. Code of conduct for Submitters 17. The Consultation Report discusses elements of a code of conduct for Submitters. Are the measures discussed (e.g., adequate policies to verify submissions, record management policies that allow the Submitter to evidence how a particular submission was given, etc.) sufficient to address potential conflicts of interest identified or do you believe that other control framework principles should be added? Response: In addition to the elements already discussed in relation to a code of conduct for Submitters, Standard Chartered Bank believes that a formal internal requirement for authorisation within the Submitter institution, to perform Benchmark submissions, should be included in such codes. This would be in line with the proposals from the UK FSA in relation to benchmark submission as a regulated activity, although please note our comments in relation to question 12 above. Standard Chartered Bank further believes that any code of conduct for Submitters should include provisions which clearly set out that improper conduct is strictly prohibited, including a non-exhaustive list of examples of such improper and prohibited conduct. Such improper conduct would include the entry and subsequent withdrawal of orders to trade ( spoofing ) or the execution of artificial transactions ( wash trading ) for the purposes of influencing benchmark submissions by others, which are in turn based on observed transactional or quoted data. 18. What would be the key differences in the code of conduct for Benchmarks based on different input types, for example transactions, committed quotes and/or expert judgement? Response: Standard Chartered Bank believes that for Benchmarks based on committed quotes or on expert judgement based submissions, the relevant rules or guidance should be more prescriptive than for those where the Benchmark is calculated by reference to data. In such transactional data based Benchmarks, similar rules which apply to transaction reporting mechanisms should be implemented. Page 5 of 11

6 Chapter 3 Approaches to enhanced oversight 19. What are the advantages and disadvantages of making Benchmark submissions a regulated activity? Response: The primary advantage of making Benchmark submissions a regulated activity is transparency over the application of conduct rules and over the expected standards of behaviour. This in turn promotes greater confidence in the Benchmark. The main challenge of making Benchmark submissions a regulated activity is in relation to situations where a Submitter operates in a different location from where the Benchmark is regulated from, which could cause issues from a jurisdictional perspective. 20. What are the advantages and disadvantages of making Benchmark Administration a regulated activity? Response: The primary advantage of making Benchmark submissions a regulated activity is again transparency over the application of conduct rules and the expected standards of behaviour. This in turn promotes greater confidence in the Benchmark. The main challenge of making Benchmark submissions a regulated activity is that the types of entity involved in Benchmark administration are not the same types of entity that are typically subject to financial regulation and hence may have less well developed internal Compliance functions. 21. Do you agree with the factors identified for drawing regulatory distinctions? What other factors should be considered in determining the appropriate degree of oversight of Benchmark activities (discussed in Chapter 3)? Please provide specific recommendations as to how the distinctions discussed in Chapter 3 should inform oversight mechanisms. Response: Standard Chartered Bank agrees that all the factors indentified in chapter 3 part B of the Consultation Report are important for drawing regulatory distinctions, but believes that the most important factor from a practical perspective in terms of the rules or guidance that should be applicable to Submitters, will be the input type (i.e. data, committed quotes or expert judgement based). 22. What distinctions, if any, should be made with regard to Benchmarks created by third parties and those created by regulated exchanges? Response: Standard Chartered Bank does not believe that any distinctions should be drawn between Benchmarks created by third parties and those created by regulated exchanges. We believe that all Benchmarks should be held to the same minimum set of standards. 23. Assuming that some form of enhanced regulatory oversight will be applied to an asset class Benchmark, should such enhanced oversight be applied to the Submitters of data as well as the Administrator? Response: If it is deemed necessary to apply enhanced regulatory oversight to Benchmarks of a particular asset class, Standard Chartered Bank believes that the Administrator of the Benchmark should remain the primary focus of such enhanced oversight and that Administrators should have oversight over the associated Submitters. Page 6 of 11

7 24. What are the considerations that should be taken into account if the Submitters to a Benchmark operate in an otherwise unregulated market (e.g., physical oil, gold or agricultural commodity markets) and are not otherwise under any obligation to submit data to an Administrator? Response: Standard Chartered Bank believes that consideration should be given to regulating those markets. Standard Chartered Bank notes that even if the underlying market to which a Benchmark relates is otherwise unregulated, the Benchmark itself may be frequently used in contracts which are traded by regulated companies. Standard Chartered Bank believes that all Benchmarks should be subject to the same minimum set of standards to maintain overall confidence. 25. Do you believe that a code of conduct, either on its own or in conjunction with other measures outlined within the report, would provide sufficient oversight to mitigate the risks that have been identified in Chapter 2? What measures should be established in conjunction with a code of conduct? For which Benchmarks is this approach suitable? Response: Standard Chartered Bank believes that a code of conduct should provide sufficient oversight, however consideration needs to be given to how that code is monitored and enforced and what would be the consequences for breaches of such a code. 26. What other measures outlined in the report, if any, should apply in addition to a code of conduct? If you believe a code of conduct, either on its own or in conjunction with other measures outlined within the report, would provide sufficient oversight to mitigate the risks that have been identified in Chapter 2, what type of code of conduct should apply (e.g., a voluntary code of conduct, an industry code of conduct submitted to and approved by the relevant Regulatory Authority, a code of conduct developed by IOSCO, etc.)? Response: Standard Chartered Bank believes that the codes of conduct should be industry level but at least submitted to, and preferably endorsed by, a relevant national regulator. Standard Chartered Bank notes however that global consistency is critical in this regard and having too many codes could become complicated and make maintaining consistency a greater challenge. For example if a situation arose where a number of broadly similar codes arose in one jurisdiction, operated by different industry associations in relation to different Benchmarks, then consideration should be given to requiring the national regulator to implement an overarching set of standards and requirements to promote greater consistency. IOSCO may therefore wish to consider developing and publishing a model code for Benchmark administration and submission which could be adopted by national regulators or industry associations as necessary. In addition consideration should be given to implementing a similar requirement to that which already exists for Central Counterparties ( CCP ) under the Basel III capital adequacy requirements (i.e. in that CCP cleared transactions will only qualify for the favourable capital treatment if the CCP complies with the relevant IOSCO published principles). Benchmarks could be similarly assessed for compliance with a set of IOSCO prescribed principles and then incentives could be implemented to persuade Administrators and Benchmark users come into compliance with those principles. 27. Do you believe that the creation of a Self-Regulatory Organisation (.e.g., one that exercises delegated governmental powers) and itself subject to governmental oversight, whether or not in conjunction with industry codes is a viable alternative for sufficient oversight and enforcement to mitigate the risks that have been identified in Chapter 2? For which Benchmarks is this approach suitable? What if any complementary arrangements might be necessary, such as new statutory obligations or offences for Administrators and/or Submitters? Response: Standard Chartered Bank does not believe that the creation of Self-Regulatory Organisations is necessary provided that the relevant industry codes of conduct are sufficiently standardised and harmonised from a global perspective, and contain adequate disincentives for noncompliance. Any laws, rules or regulations which are implemented should preferably be high level and principles based and be supplemented by industry codes of conduct, such that breaches of the codes of conduct imply breaches of principles, which can be subject to regulatory sanction. Page 7 of 11

8 28. Do you believe that, for some Benchmarks, reliance upon the power of securities and derivatives regulators to evaluate products that reference a Benchmark or exercise their market abuse or false reporting powers creates sufficient incentives for the Administrator to ensure sure that Submitters comply with a code of conduct? Response: Standard Chartered Bank believes that in order to be able to place such reliance, there would need to be a strong connection between the market conduct regulations applicable to the relevant security or derivative that references a Benchmark, and the improper activity or conduct relating directly to the Benchmark. For example the relevant securities or derivatives which reference the Benchmark must be very clearly subject to the market conduct regulations, and the improper conduct in relation to the Benchmark itself must clearly be within the jurisdiction of the relevant regulator. In a European Union context this may prove challenging for certain OTC derivatives contracts, which are not subject to market conduct requirements under current regulations. 29. Do you believe that users of a Benchmark, specifically, the users who are regulated or under the supervision of a national competent authority should have a role in enhancing the quality of Benchmarks? Which form should this role take: on a voluntary basis (e.g. the user being issued a statement that will only use Benchmarks that follow IOSCO principles), or on a compulsory basis (e.g., the competent authority could request that users who are registered under their jurisdiction should only use Benchmarks that fulfil IOSCO principles)? Response: Standard Chartered Bank believes that this should be voluntary and due consideration should be given to less developed markets. In addition Standard Chartered Bank believes that the oversight committees mentioned in reference to question 10 should be sufficiently broad based to include representation from user groups within their constituents. This would allow Benchmark users a greater role in the enhancement and implementation of controls in this area. Chapter 4 Data sufficiency 30. Do you agree that a Benchmark should be anchored by observable transactions entered into at arm s length between buyers and sellers in order for it to function as a credible indicator of prices, rates or index values? How should Benchmarks that are otherwise anchored by bona-fide transactions deal with periods of illiquidity due to market stress or long-term disruption? Response: Standard Chartered Bank agrees that Benchmarks should always be anchored by observable, arm s length transactions. All Benchmarks should preferably be based on transactional data. Where the input type for a Benchmark must by necessity be committed quotes or opinion / discretionary based submissions, those submissions should always be supported by a Wheatley-style hierarchy of evidence. Due consideration should always be given to less developed markets, where sources of underlying data may be less readily available than in more developed markets. In addition even in more developed markets, for Benchmarks which have opinion or discretionary based submissions, the expert judgement must always play a role in determining submissions, in particular to take account of periods of illiquidity due to market stress or disruption. A Submitter s expert judgement can adjust the input data to allow for market disruptions, in a way that would not be possible with a Benchmark that is calculated purely by reference to actual transactional data. 31. Are there specific Benchmarks for which you consider that observable transactional data is not an appropriate criterion or the sole criterion? If so, please provide a description of such Benchmarks and what value you think such Benchmarks provide? Response: Further to question 30 above Standard Chartered Bank notes that in certain less developed markets there may still be value in having in place Benchmarks in relation to underlying markets that are less liquid. Standard Chartered Bank believes that Submitters can play a role in helping to develop such markets so as to allow them to transition over time from purely opinion based input types, to submissions of actual data. Page 8 of 11

9 32. What do you consider the limitations or value in Benchmarks referencing asset classes and underlying interests where there is limited liquidity? Please describe the uses and value of such Benchmarks in the financial markets. Response: As noted above the publication of Benchmarks which reference asset classes or underlying interests even where there is limited underlying liquidity can play a vital role in the overall development of those markets. 33. Do you agree that the greatest weight should be given to transactions in the construction of a Benchmark and that non-transactional information should be used as an adjunct (e.g., as a supplement) to transactions? Response: Standard Chartered Bank agrees that greater weight should always be given to transactions when calculating a Benchmark, however as noted under question 30 above, in relation to Benchmarks which rely on opinion based submissions, the Submitter s expert judgement will play a valuable role. 34. What factors and how often should Administrators (or others) consider in determining whether the market for a current Benchmark s underlying interest is no longer sufficiently robust? What effective methods of review could aid in determining the insufficiency of trading activity within the market for a Benchmark s underlying interest? Response: When considering the ongoing adequacy of the underlying market for a Benchmark, Standard Chartered Bank believes that periodic reviews of the transactional activity should be conducted by Administrators. This could form part of the annual audit process which is applied to the Administrator and come within the overall remit of the relevant oversight committees. Again though, Standard Chartered Bank notes that for less well developed markets this approach and the expectations should be adapted accordingly. Transition 35. What precautions by Benchmark Administrators, Submitters, and users can aid Benchmark resiliency during periods of market stress, mitigating the potential need for market transition? Response: Even where Benchmarks are ordinarily calculated purely by reference to actual data, appropriate fall-back mechanisms, including reference to the expert judgement of relevant contributors, should be incorporated. Again due consideration should be given to the level of development in the market where the Benchmark operates. 36. What elements of a Benchmark living will, drafted by a Benchmark Administrator, should be prioritised? Response: Priority should be given to continuity, ongoing credibility and precautions to aid resiliency in times of market stress. These precautions should include any applicable fall-back mechanisms in the event that the normal calculation methodologies are unavailable. 37. By what process, and in consultation with what bodies, should alternatives be determined for Benchmark replacement? Response: Benchmark replacement should be the primary responsibility of the Administrator. In particular the oversight committee for the Benchmark should carry out the necessary consultations, in coordination with broader groups including Submitters and users. Page 9 of 11

10 38. What characteristics should be considered when determining an appropriate alternate Benchmark? (Examples below) Should any of these factors be prioritised? Level and Type of Market Activity Diversity/Number of Benchmark Submitters Length of historical price series for the Benchmark alternative Benchmark Methodology Existing regulatory oversight Existing enforcement authority Volume, tenors and contract structure of the legacy trades Response: Standard Chartered Bank believes that all of the above factors are relevant. In particular with regard to the second factor (Diversity/Number of Benchmark Submitters), participation and eligibility criteria for the Submitters should also be taken into consideration. 39. What conditions are necessary to ensure a smooth transition between market Benchmarks? Response: Standard Chartered Bank believes that in order to ensure a smooth transition between Benchmarks, sufficient time needs to be allowed for all necessary actions to be taken. In addition communication between all interested parties must be clear and timely. Finally, clarity on the position to be taken in relation to legacy contracts is also critical. 40. What considerations should be made for legacy contracts which reference a Benchmark in transition? To what extent does a substantive legacy book preclude transition away from a Benchmark? What provisions can be included in [new and existing] contract specifications which would mitigate concerns if and when a Benchmark transitions occurs? Response: Standard Chartered Bank believes that in any situation where a Benchmark is undergoing any form of transition, all efforts should be made to maintain the fundamental characteristics of the Benchmark and otherwise minimise disruption for existing contracts. Whether a substantial book of legacy contracts will preclude a transition away from a particular Benchmark, will depend on the exact contractual terms which are used in the relevant legacy contracts and the exact nature of the transition from the original Benchmark. Legacy contacts: The definition of Benchmarks in legal contracts (especially for OTC derivative transactions) is very much page-driven. It typically has a short description of the rate, and specifies the screen page and time the rate is to be referenced for calculation purposes. (For example, SGD SIBOR is defined as the rate for deposits in Singapore Dollars.which appears on Reuters Screen ABSIRFIX01.as of 11:00 a.m.., Singapore time ). Contracts that are defined this way should be able to accommodate a certain amount of change to the rate in terms of methodology, such as polling, compilation or trimming. However, if the changes become more significant from an economic perspective (e.g. if the rate or methodology changes significantly or fundamentally) then the risk that a contract is frustrated becomes greater. Where the rate is not published on the particular screen, the definition normally provides for fallback of polling a specified number of reference banks using the pre-defined polling methodology. Reliance on such bilateral polling for Benchmarks that are referenced in a high number of transactions may not be sustainable and creates basis risks since bilateral polling of different reference banks is likely to produce slightly different results. Given that contracts can only be amended by bilateral agreement between parties to the contract, there must be sufficient time for parties to amend legacy contracts. It would be very helpful for industry bodies such as ISDA, to publish protocols which have the effect of amending contracts bilaterally among the parties who adhere to the protocol. Templates for bilateral amendment could also be published for parties who do not wish to adhere to the protocol but still wish to amend their contracts bilaterally. Market practice statements issued by the relevant Benchmark sponsor and/or industry body would also be helpful to encourage participants to amend their contracts. Page 10 of 11

11 An alternative to amending contracts is to have the old Benchmark continue to run in parallel with the new Benchmark until all legacy contracts referencing that Benchmark have matured. 41. How should a timeframe be determined for market movement between a Benchmark and its replacement? What considerations should be made for: Altered regulatory oversight? Infrastructure development/modification? Revisions to currently established contracts referencing the previous Benchmark? Revisions to the Benchmark Administrator? Risk to contract frustration Response: In addition to the factors listed, Standard Chartered Bank believes that two further factors that should be taken into consideration when determining a timetable for a Benchmark transition, are the size of any existing legacy book and the acceptability of the new Benchmark to the relevant market participants. With regards to legacy contracts, please see our comments in response to question 40 above. There must be a sufficient timeframe for participants to revise their contracts by way of bilateral amendments or by way of adhering to published protocols. Both require voluntary action by market participants. A suitable timeframe would depend on availability of a protocol or amendment template, the number of participants in the Benchmark, the type of participants, the number of users of the Benchmark and the transaction volume. With regards to new contracts, participants should be given sufficient time to amend their contract templates to reference the new Benchmarks. As most OTC derivatives transactions refer to definition booklets published by industry body (such as ISDA, EMTA and/or the FX Committee), the timeframe should include publication by industry bodies of new definition booklets. In addition, if the affected Benchmarks are used in other markets such as retail mortgages, there should also be sufficient time to engage these markets and for participants in these markets to amend their contracts. Publication of educational materials for retail participants would also be useful. Page 11 of 11