The European
Commission published amendments to the proposed Market Abuse Regulation and the
Criminal Sanctions Directive for insider trading and market manipulation that
would prohibit and criminalize the manipulation of Libor and other benchmarks.
These pieces of draft legislation constitute proposals for a new EU market
abuse regime, a piece of EU conduct regulation which creates prohibitions
against and sanctions to apply to insider dealing and market manipulation. Commissioner
for the Internal Market Michel Barnier said that the amendments ensure that the
manipulation of benchmarks is clearly illegal and subject to criminal
sanctions.
Libor is a benchmark to gauge the cost of unsecured borrowing in the London interbank market and sets the price for hundreds of trillions of dollars with of derivatives and other financial contracts worldwide. Although Libor is calculated in London, it is based on daily submissions from a number of international banks and is used as a global benchmark.
Libor is a benchmark to gauge the cost of unsecured borrowing in the London interbank market and sets the price for hundreds of trillions of dollars with of derivatives and other financial contracts worldwide. Although Libor is calculated in London, it is based on daily submissions from a number of international banks and is used as a global benchmark.
Specifically, the
Commission amends the draft Market Abuse Regulation to bring benchmarks into
the scope of the Regulation, using a definition of benchmarks based on that
proposed in the Regulation for Markets in Financial Instruments Directive
(MiFID). It has also proposed amendments to the definition of the offense of
market manipulation to capture both attempted and actual manipulation of
benchmarks themselves.
Similarly, the
European Commission has proposed amendments to the draft Criminal Sanctions
Directive to include the MiFID definition of benchmarks, amendments to the
criminal offense of market manipulation to include the manipulation of
benchmarks themselves, and amendments to the criminal offense of inciting,
aiding and abetting and attempt to include these behaviors in relation to benchmarks.
The Commission proposes to require each member state to
provide for criminal sanctions in its national laws to cover the manipulation
of benchmarks, The Commission is not proposing to set the minimum types and
levels of criminal sanctions; however it has proposed to undertake a review of
the appropriateness of such minimums within four years of the Directive’s entry
into force. At present, the UK Government has not committed to opt into the
Criminal Sanctions Directive, and will review this decision upon the completion
of the MiFID and the Market Abuse Regulation.
As part of the
European Commission’s announcements on its proposed changes to the market abuse
regime, Commissioner Barnier said that an even more specific formula and
approaches will be required for all benchmarks, and that all those involved in
the markets should be subject to regulation, including in relation to
benchmarks. The European Commission and the European Central Bank, along with
the IOSCO and the Financial Stability Board, are currently examining how
benchmarks are established in order to identify weaknesses and shortcomings and
suggest possible ways of addressing the problems at hand. This work is not
limited to interest rate benchmarks.