COB 9.4.2 Guidance

An ATS Operator, when assessing the suitability of a Price Information Provider (the provider), should take into account factors such as:

a. the provider's standing and reliability in the relevant physical or derivatives markets as a credible price reporting agency;
b. the quality of corporate governance adopted, covering areas such as independent members of the board, independence of its internal audit and risk management function;
c. whether the methodologies and processes (including any material changes to such methodologies and processes) adopted by the provider for the purposes of pricing are made publicly available;
d. whether there are adequate procedures adopted to ensure that conflicts between the provider's commercial interests and those of users of its services, including those of its Employees involved in pricing process, are adequately addressed, including through codes of ethics;
e. whether there is a clear conveyance to its users of the economic realities of the underlying interest the Price Information Provider seeks to measure; and,
f. the degree to which the Price Information Provider has given consideration to the characteristics of the underlying interests measured, such as:
•   the size and liquidity: Whether the size of the market informs the selection of an appropriate compilation mechanism and governance processes. For example, a benchmark or index that measures a smaller market may be impacted by single trades and therefore be more prone to potential manipulation, whereas a benchmark for a larger market may not be well represented by a small sample of participants;
•   the relative market size. Where the size of a market referencing a benchmark is significantly larger than the volume of the underlying market, the potential incentive for benchmark manipulation to increase; and
•   Transparency: Where there are varying levels of transparency regarding trading volumes and positions of market participants, particularly in non-regulated markets and instruments, whether the benchmark represents the full breadth of the market, the role of specialist participants who might be in a position to give an overview of the market, and the feasibility, costs and benefits of providing additional transparency in the underlying markets.
[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]