Financial Benchmarks – Governance Framework for Benchmark Submitters


On  February 7, 2014  ‘ Committee on Financial Benchmarks (Chairman: Shri P. Vijaya Bhaskar, Executive Director)’,  submitted its Report  recommending several measures/principles to be adopted in respect of major Indian Rupee interest rate and Foreign exchange benchmarks to strengthen their quality, setting methodology and the governance framework.

Reserve Bank of India has accepted the recommendations of the Committee and as per the announcements made in the First Bi-monthly Monetary Policy Statement 2014-15 on April 1, 2014; the Bank has set in motion the process to implement the recommendations of the Committee.

Reserve Bank of India has held consultations with the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and Foreign Exchange Dealers’ Association of India (FEDAI), to implement the recommendations of the Committee.

Reserve Bank has advised the FIMMDA and FEDAI to act as the Administrator of the Indian Rupee interest rate and Foreign exchange benchmarks respectively and to take necessary steps to implement the recommendations of the Committee.

As there are chances of conflicts of interest in the benchmark setting process arising out of the current governance structure of the FIMMDA and FEDAI, Reserve Bank of India has suggested setting up an independent body, either separately or jointly, by the FIMMDA and FEDAI for administration of the benchmarks.

In case of benchmarks determined based on polled submissions, the FIMMDA and FEDAI may select the Benchmark Submitters on the basis of their standing, market-share in the benchmark/instrument linked to the benchmark and representative character and may put in place a Code of Conduct specifying various provisions including hierarchy of data inputs for submissions as recommended by the Committee.

The Benchmark Submitters thus selected by the respective Administrator, have to necessarily participate in the polling process and comply with the various provisions specified in the Code of Conduct.

Reserve Bank has advised the Benchmark Submitters to implement the following measures, to strengthen the governance framework for benchmark submission:

  • The Benchmark Submitters may put in place an internal Board approved policy on governance of the benchmark submission process.
  • They may put in place an effective conflicts of interest policy which facilitates identification of potential and actual conflicts of interest with respect to benchmark submissions.
  • They may establish a maker-checker system to ensure integrity of the submissions.
  • They may establish appropriate internal controls to secure compliance with the benchmark submission procedures.
  • The transactions which are taken as the basis for submission may be recorded so as to verify that they represent bonafide arm’s length commercial transactions, and are not undertaken solely for the purpose of benchmark submission.
  • They may establish an effective whistleblowing policy to facilitate early detection of any potential misconduct or irregularities in the benchmark data submissions.
  • They may retain all records relating to benchmark submissions and findings of internal and external audits and remedial actions taken thereof for a minimum period of eight years.
  • They may subject the benchmark submissions to periodic internal audit, and where appropriate, to external audit.
  • They may undertake submissions by way robust contribution devices which leave an audit trail to eliminate possibilities of errors.
  • They may conduct a reality self-check of their existing governance framework.

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