EU Regulation on how to calculate important price indicators in the financial markets

A new legislation in the EU attempts to prevent scandalous behaviour by the financial industry, which was exposed after the financial crisis. Banks had been manipulating the indicators of the interest rate which they were paying when they were borrowing themselves. Not only these socalled ‘benchmarks’ or ‘indices’, such as the LIBOR and EURIBOR for interest rates, but also some benchmarks for foreign exchange rates and even commodity prices were being manipulated. These benchmarks are used in financial instruments and financial contracts, including mortgages and derivatives, so that millions of clients paid higher prices than would have been needed while banks, amongst others, were profiting.

In order to avoid manipulation due to conflicts of interest as well as badly and non-regulated processes, contributors and governance to decide on the daily indices, the European Parliament is deciding on a Regulation ‘on indices used as benchmarks in financial instruments and financial contracts’ and will vote on the report by the European Parliament’s ECON committee(opens in new window) on 5 March 2015(opens in new window) after a hearing was held on 11 November 2014(opens in new window) . In the meantime, decision making in the Council of Finance Ministers is also progressing according to a compromise text on 21st January 2015(opens in new window) .