1 Introduction
From time to time it may be considered necessary to make changes to, or cease providing, a benchmark due to, for instance, market structure changes or other any factor which cause the benchmark to no longer represent its originally intended function.
According to Art. 28 (1) BMR, an administrator must publish, together with the Benchmark Statement, a procedure concerning the actions to be taken by the administrator in the event of changes to or the cessation of a Benchmark which may be used in the European Union. Furthermore, the administrator shall publish or make available information on the rationale for any proposed material change including an assessment as to whether the representativeness of the benchmark and its appropriateness for its intended use are put at risk in case the proposed material change is not put in place.
Proprietary Benchmarks are provided by the Equities Markets and Commodities (‘EMC’) Unit of Commerzbank Aktiengesellschaft (‘Commerzbank AG’). Commerzbank AG owns the intellectual property involved in the creation and maintenance of these benchmarks. Each of these benchmarks has a documented methodology and serves as the underlying of products issued or entered into by Commerzbank AG. The benchmark methodology details the objective for the benchmark.
It should be noted that most of the proprietary benchmarks provided by Commerzbank AG are bespoke and are not widely used in financial instruments offered by other market participants, but are used in financial instruments offered by Commerzbank AG to its clients.
Furthermore proprietary benchmarks provided by Commerzbank AG are not designed for widespread use by market participants. All of the proprietary benchmarks provided by Commerzbank AG are ‘non-significant benchmarks’ as defined by Regulation (EU) 2016/1011 of the European Parliament and the Council of the European Union ( the ‘EU Benchmarks Regulation’).
2 Scope
As an overarching principle, in order to ensure investor protection, to safeguard the benchmark users against the risks of relying on a particular benchmark and to help reduce or prevent potential wider market disruption, the administrator must have fall back procedures in the event of changes to or the cessation of a benchmark. This will mitigate the uncertainty and disruption which may otherwise arise. This document sets out the procedure which should be followed in case of changes to or the cessation of a benchmark.
3 Material Change Procedure
Commerzbank AG benchmarks follow specific rules that are set out in the relevant index methodology and are intended to be clear and understandable for the investor. There are cases however, where errors, omissions and ambiguities may occur. In such cases, Commerzbank AG will follow procedures, which are appropriate and proportionate to the specific conditions of each product linked with the relevant benchmark.
The procedure includes the following steps: a. discovery; b. planning; c. execution
Discovery: The personnel responsible for the Benchmark calculation shall try to resolve such ambiguity, error or omission using discretion and may, in consultation with the body which carries out governance and oversight in respect of Benchmarks within Commerzbank AG (the ‘Index Committee’), propose amendments to the index methodology to reflect the resolution of such ambiguity, error or omission. In so doing, the Index Committee shall assess whether there is a case of “material change” and the impact of this change on stakeholders. If the Index Committee decides that the “material change” is appropriate and proportionate to the risk and size of the benchmark and depending on the nature of the change, the Index Committee may seek to consult with investors and stakeholders. Any such decision to consult with investors and/or stakeholders shall be considered by the Index Committee.
Planning: The personnel responsible for the index calculation together with the Index Committee, shall consider the following factors: (i) the potential impact on Investors (large or small impact on one or several investors), (ii) whether a change to a benchmark (including, without limitation, a change to the composition, data inputs or calculation methodology) is necessary to ensure that the benchmark continues to be fit-for-purpose, and (iii) any feedback received from investors and other stakeholders (if appropriate) prior to implementation.
Execution: The personnel responsible for the relevant index shall consult, as necessary, with the Index Committee on all three phases of the process and shall consult with the Index Committee with regard to any proposed amendment to the relevant index methodology and may liaise with other teams within Commerzbank AG with regard to obtaining investor’s and stakeholder’s feedback.
Prior Index Committee approval is required in connection with any amendments to the methodology deemed to be a material change.
Following the decision that a material change to the calculation methodology is required, the Commerzbank AG shall promptly notify the investors and stakeholders of its intention to amend the index methodology, indicating the effective date of such change in methodology. The notification of the investors and stakeholders shall happen through posting the notification on the website.
4 Cessation Procedure
There may be factors, including external factors beyond the control of Commerzbank AG, which may necessitate the cessation of the benchmark. Changes in the underlying components or interest referenced by a benchmark can influence the benchmark in such a way that the benchmark no longer reflects the purpose for which it was established or the interest originally intended to. Then, it may be deemed necessary to cease providing the benchmark. The cessation of the benchmark may have a significant impact upon the financial instruments that reference the benchmark. The following cessation procedure sets out the actions we will take in the event that Commerzbank AG considers that it is appropriate and proportionate to cease providing the specific benchmark.
The procedure includes the following steps: a. discovery; b. planning; c. execution
Discovery: Commerzbank AG shall review and identify the use of the benchmark and any financial instrument/s that reference it. Further, the potential impact the cessation of a benchmark may have on relevant stakeholders and investors must be evaluated after the consultation with those relevant stakeholders and investors. Any such decision to consult with stakeholders shall in the first instance be made by the Index Committee.
Planning: Commerzbank AG shall take an appropriate and proportionate approach and consider the following: (i) the potential impact on stakeholders and investors (large or small impact on one or several investors), (ii) any feedback received from relevant Stakeholders and investors (as applicable), (iii) the availability of an alternative benchmark, (iv) the extent to which relevant Stakeholders and investors may wish to transition to an alternative benchmark and, if so, the feasibility of maintaining any parallel benchmarks in order to accommodate an orderly transition to an alternative benchmark, (v) the extent to which an alternative benchmark is investable, (vi) the course of action that it shall follow in the event that a suitable alternative cannot be identified, and (vii) timing aspects for the cessation of a benchmark and transition to an alternative.
Execution: The personnel responsible for the index calculation shall be responsible for overseeing and shall consult, as necessary, with the Index Committee on all three phases of the process with regard to any proposal to cease publication of a benchmark and may liaise with other teams within Commerzbank AG or its affiliates with regard to obtaining relevant Stakeholder’s and investor’s feedback.
Prior Index Committee approval is required for the cessation of any benchmark administered by Commerzbank AG.
Commerzbank AG must promptly notify all users, investors and stakeholders of the intent to cease the creation and publication of the benchmark and provide as much information with regard to timelines as reasonably possible. The notification of the investors and stakeholders will follow the rules and procedures included in the index descriptions.
Please note that Commerzbank has reached an agreement to sell its Equity Markets & Commodities business, which includes the issuance and trading of investment and leverage products as well as the administration of indices, to Société Générale S.A. As part of the transaction Commerzbank envisages the discontinuance of its administration role in respect of indices within the next few years.