Baltic Exchange Chief Executive, Mark Jackson writes:
I am pleased to announce that Baltic Exchange Information Services Ltd (BEISL), the Baltic Exchange subsidiary responsible for our wide range of freight market information, is now authorised by the UK’s Financial Conduct Authority (FCA) as a benchmark administrator under EU Benchmark Regulation. This makes the Baltic Exchange the first benchmark administrator specialising in the maritime freight markets to be authorised in the EU.
Whilst the substance of our index administration service has not changed, we have added an extra body to our oversight arrangements. The BEISL Oversight Function oversees the work of the BEISL Board and Baltic Index Council, which have been in place since 2015. It is comprised of voting members who are independent of the benchmark production process, and who have powers to ensure BEISL’s compliance with the EU Benchmark Regulation.
The authorisation of BEISL as a benchmark administrator is an important milestone as it ensures that European clearing houses and financial institutions can continue to use Baltic Exchange data for settlement of financial instruments such as freight forward agreements.
But does the fact that the UK is set to leave the EU make a difference? The short answer is no. The FCA is still an active member of the European Securities and Markets Authority (ESMA) and works closely with regulatory authorities in the EU. Wherever the UK and the EU end up, our financial markets and regulators will remain closely linked. The FCA is introducing the UK Benchmarks Register. This new Register will replace the ESMA Register for UK supervised users, and UK and third-country based benchmark administrators that want their benchmarks to be used in the UK. We foresee that in a post-Brexit world BEISL will eventually be authorised in the UK and recognised as a third-country benchmark administrator in the EU.
It is important to not lose sight of the reason that such stringent legislation covers benchmark providers such as the Baltic Exchange. The LIBOR scandal rocked financial markets and shocked the general public. Since then, huge efforts have been made by regulators around the world to ensure that transparency and robust standards underpin any benchmark used to support financial instruments traded and cleared on any trading venue and clearing house. Freight derivatives, settled against the Baltic Exchange’s benchmarks, fall into this category.
Over the past few years, the Baltic Exchange has worked hard to ensure that its methodologies and governance processes meet the more stringent legislative requirements. Our original Manual for Panellists which set out how we report our market was updated and replaced by the Guide to Market Benchmarks in 2015. Whilst the fundamental philosophy which underpins the Baltic’s indices remains unchanged – assessments by independent shipbrokers reporting on visible routes – we have rewritten our rule book to ensure that we fit with the language of regulatory compliance.
The freight markets rely on the Baltic Exchange benchmarks to function smoothly. We are committed to providing the markets with independent indices and assessments which are well designed, trustworthy and are backed up with robust governance processes. Our high standards uphold confidence in the shipping markets.