BMR: ESMA Addresses "Entirely and Directly"

24 July 2018


In a previous blog post back in April, we discussed the wording entirely and directly which is used in the EU benchmark regulation (the "BMR"). As one of the first benchmark administrators to become regulated under the BMR, we described different interpretations of this wording as well as some of their potential consequences, and we finished the discussion by encouraging ESMA to clarify some related questions.

Following our previous blog post, ESMA has now addressed this topic, and we will discuss their answer in this blog post.

For full background on the subject matter, readers are referred to our previous blog post.


Data vendors

The first question we asked ESMA to clarify was whether the use of a data vendor would mean that input data is not considered to be sourced directly, even if such data vendor delivers the data in its raw form. Our question was: Does the use of a data vendor result in the input data to not be considered as sourced directly?

ESMA has now stated that: The notion of “entirely and directly” in Article 3(1)(24)(a) precludes, in principle, the involvement of any third party in the data collection process. The data should be sourced entirely and directly from a trading venue without the involvement of third parties, even if these third parties function as a pass-through and do not modify the raw data.  

This is a very clear answer, and one that was in line with Foxberry's expectations having been one of the first firms to go through the process of becoming regulated under the BMR.

As we highlighted in our previous blog post, it is common for data vendors to also operate a benchmark administration business. This will mean that it will be easier for data vendors who also run their own benchmark administrator businesses to have its benchmarks classified as regulated-data benchmarks. In our previous post, we also highlighted that other benchmark administrators, who use a data vendor to source the input data, will have to demonstrate sufficient oversight of such data vendor. In all likelihood, this will in practice require governing agreements and cooperation from the relevant data vendor. We noted that it remains to be seen, to what extent data vendors will be willing to facilitate such arrangements with competing benchmark administrators.


Calculation agents

In our second question, we highlighted the paragraph Article 3(1)(24a)(vii) to ESMA which allows for a third-party to conduct the data collection. The question we asked was:  ...does the provision of BMR Article 3(1)(24a)(vii) allow for multiple steps of outsourcing data collection, i.e. through the use of BMR Article 10? 

Here our concern was that BMR Article 3(1)(24a)(vii), which allows for a third-party service provider to conduct data collection, does not allow the service provider to receive in turn the data from another service provider.

According to this provision, the data must in such case be sourced entirely and directly from the relevant trading venue. We noted that it is, in our view, unclear if it is the regulator’s intention to disallow multiple layers of service providers with regards to data collection, or if in fact a multi-step outsourcing setup of data collection should be allowed under the general outsourcing provisions in BMR Article 10. The scenario we were considering in particular was the case when a benchmark administrator uses a calculation agent as service provider who in turn collects the data from a data vendor, adding another layer of service providers.

With regards to the outsourcing of data collection and Article 10, ESMA does not go further than to state that ...pursuant to Article 3(1)(24)(a)(vii), if an administrator obtains regulated data through a third party service provider (such as a data vendor) and has in place arrangements with such service provider that meet the outsourcing requirements in Article 10 of the BMR, the benchmark still qualifies as regulated data benchmark.

In their answer, ESMA has still only considered a one-step outsourcing of data collection, in which the service provider envisaged under Article 3(1)(24)(a)(vii) is a data vendor. As the term data collection is broad, it could be envisaged that a calculation agent falls under this definition, and that such calculation agent is therefore not allowed to source the data from a data vendor.

It could however also be argued that the calculation agent is performing an outsourced function under Article 10 of determining the benchmark, and that the wording benchmark administrator in Article 3(1)(24)(a)(vii) therefore could refer to the calculation agent, an interpretation that would mean that the use of a data vendor poses no regulatory issues, provided that both the arrangements of the calculation agent and data vendor satisfy the conditions specified in Article 10.



We would like to thank ESMA for addressing the issues raised by Foxberry as we believe answering these type of questions in a public and transparent manner is important to ensure homogeneous manner across the EU. However, we still believe further clarification would be beneficial to address the considerations detailed above, i.e. where a calculation agent is conducting data collection from a data vendor.

As this setup is so common, until further guidance is provided or an industry consensus develops, the regulated-data benchmark classification may become somewhat of an empty seat.

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