EDHEC-Risk Institute warns European Parliament on opacity in index regulation proposal

In an open letter addressed to the Chair of the European Parliament ECON committee, Roberto Gualtieri on February 20, 2015, EDHEC-Risk Institute has expressed its concern about the new draft text which is being proposed for a vote by the committee on March 9, which plans to remove all obligations of transparency from the initial project for regulation of indices used as benchmarks.

Article also available in : English EN | français FR

In an open letter addressed to the Chair of the European Parliament ECON committee, Roberto Gualtieri on February 20, 2015, EDHEC-Risk Institute has expressed its concern about the new draft text which is being proposed for a vote by the committee on March 9, which plans to remove all obligations of transparency from the initial project for regulation of indices used as benchmarks. If this provision is adopted, EDHEC-Risk Institute considers that it would constitute a step backwards compared to the texts currently in place, which organise the transparency of the investment industry.

With the development of passive investment, notably in the pension fund world, EDHEC-Risk Institute does not understand why the commission wishes to promote a text that falls far short of ESMA’s transparency requirements for financial indices used in UCITS. EDHEC-Risk Institute would have thought that, in a concern for better investor protection, the parliament would have strengthened transparency requirements rather than weakening them and ultimately limiting them to UCITS funds alone, which only represent a portion of European savings.

EDHEC-Risk Institute calls on the committee to refuse the removal of the planned provisions on transparency in the proposal for a regulation on indices used as benchmarks and indeed, on the contrary, to introduce high standards of transparency that will address the legitimate information needs of index users and leverage market discipline to efficiently reduce the risks of abuse and promote competition and innovation in the indexing industry.

The draft regulation on which it is proposed that the committee will vote can only strengthen the false sense of security conferred by a law that is supposed to be protective but in fact is not protective at all because it institutionalises opacity. This opacity will have non-negligible consequences on the increase in risk in passive investment and is in total contradiction with the desire to strengthen the quality and security of financial products offered to the public that the European Parliament has affirmed on many occasions.

Next Finance , March 2015

Article also available in : English EN | français FR

See online : Copy of the open letter addressed to the Chair of the European Parliament ECON committee, Roberto Gualtieri on February 20, 2015

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