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Alexander J. Matturri, Jr. 55 Water Street New York, NY 10041 212-438-5530 Tel 212-438-5582 Fax [email protected]

Chief Executive Officer S&P Dow Jones Indices

February 11, 2013

Mr Alp Eroglu International Organization of Securities Commissions (IOSCO) Calle Oquedo 12, 28006 Madrid Spain Via electronic mail: [email protected]

Dear Sir:

On behalf of The McGraw-Hill Companies, Inc. which owns the controlling interest in S&P Dow Jones Indices LLC, I thank you for the opportunity to respond to the questions raised in the Board of the International Organization of Securities Commission’s (“IOSCO”) Consultation on Financial Benchmarks dated January 2013 (the “Consultation Document”). S&P Dow Jones Indices shares IOSCO’s goal of enhancing confidence transparency and integrity in key benchmarks and we welcome further engagement with IOSCO as it undertakes its review.

S&P Dow Jones Indices is a leading publisher of a wide variety of indices, many of which are used as benchmarks. We publish over 830,000 indices, including globally-recognized and industry-leading indices such as the S&P 500, the Dow Jones Industrial Average and the S&P/Case Shiller Home Price Indices. In addition to calculating and publishing its own indices, S&P Dow Jones Indices also has a great deal of experience working with third parties and owners of other benchmarks to leverage its oversight and governance protocols, as well as its transparent systems and processes, to act as a custom index calculation agent, calculating, maintaining and distributing over 50,000 custom indices around the globe.

As S&P Dow Jones Indices, we recognize that indices, used as the underlying reference in a broad range of financial products and as a reference by portfolio managers worldwide, are important to a dynamic and robust marketplace. Markets


worldwide benefit from the increased liquidity and investment opportunities that result from index-based products. We also appreciate that there are many types of indices that capture and provide information for a number of different uses from various sources of information. Some of these indices are based on unsubstantiated estimates or surveys, while others, such as those published by S&P Dow Jones Indices, are tied to observable market information, such as actual securities transactions, observable bids and offers or other verifiable market data. Given these differences, we believe a one size fits all approach is not appropriate. Instead, the key differences between indices that are transparent and are calculated and maintained according to robust governance policies and procedures, and which rely on actual market facts, should be distinguished from those that are not, and which by their nature may therefore need oversight. Failing to make this distinction would unnecessarily increase the cost of using indices that do not pose the same types of concerns as less robust indices and benchmarks. We encourage IOSCO to conduct a thorough review of the characteristics of the different types of indices that are published, their methodologies, uses and user bases, existing governance and transparency policies, and the costs of creating additional layers of oversight, before determining what issues may have relevance for particular market measurements and whether a regulatory response is advisable with respect to a particular type of index. To aid IOSCO in that process, below we set forth our responses to the 41 questions posed in its Consultation Document. Thank you again for the opportunity to respond to the Consultation Document. S&P Dow Jones Indices welcomes the opportunity to discuss these topics at future stages of the consultation process.

Respectfully Submitted, Respectfully Submitted, Alexander J. Matturri Jr. Chief Executive Officer S&P Dow Jones Indices


CONSULTATION QUESTIONS

1. Do you agree with the scope of the report and intended audience? Are there

other Benchmarks or stakeholders that have idiosyncrasies that should place them

outside of the scope of the report? Please describe each Benchmark or stakeholder and

the idiosyncrasies that you identify and the reasons why in your view the Benchmark or

stakeholder should be placed outside of the scope of the report.

The scope of the report, including the definition of Benchmarks, is quite broad, and we would

urge IOSCO not to take a “one size fits all” approach. S&P Dow Jones Indices believes that it

should be placed outside the scope of this report, as our role in index publishing is purely

analytical and does not encompass the same issues which have drawn attention to other

benchmarks, such as interest rate indices. Once S&P Dow Jones Indices has developed an index,

the market alone determines whether it will be adopted as a benchmark; not S&P Dow Jones

Indices, its competitors, nor any other entity external to the markets. We believe the adaptation

of benchmarks is for the market to decide based on the needs of its participants. As an

independent index provider, S&P Dow Jones Indices has an incentive to publish the best product

possible according to its established policies and procedures in order for it to be adopted by the

market as a viable benchmark.

Moreover, S&P Dow Jones Indices is independent and separate from market participants,

product providers and government entities. S&P Dow Jones Indices does not participate in the

markets it measures and has no vested interest in the value of any of its indices at any given time.

We do not create, manage, issue, trade, or clear any index-linked investment product or

derivative.

As a publisher whose publications are voluntarily used by market participants and others

worldwide, S&P Dow Jones Indices is not regulated in any country. The financial index

provider industry is highly-competitive, and one that provides high quality, substitutable indices,

which are calculated according to publicly available, transparent index methodologies. That

competition is a natural check and balance in that multiple competitors are provided with

incentives to publish indices which reflect a given market to the best of their abilities.

While S&P Dow Jones Indices welcomes the opportunity to discuss its policies and procedures,

regulation of the processes by which S&P Dow Jones Indices develops and maintains its indices,

including methodologies and any associated decision making, would not only infringe upon its

rights as a publisher and proprietor of its intellectual property, but would also be an intrusion into

the very independence that makes S&P Dow Jones Indices a valuable resource to the market as

an impartial market observer. We believe that the markets are the best arbiter of what indices

and index providers are best suited to become benchmarks. For example, the S&P 500 is a

widely-used benchmark precisely because it has a long track record of effectively reflecting the

U.S. large cap market, without a vested interest in the value of the index at any given time and

without undue external influences that could bias the outcome.


2. Do you agree that the design of a Benchmark should clearly reflect the key

characteristics of the underlying interest it seeks to measure?

We agree that Benchmark design should reflect the characteristics of what it is attempting to

measure. It is also important to note that different asset classes have different characteristics,

with no one set of parameters appropriately fitting every category. As noted above, S&P Dow

Jones Indices’ role in index publishing is analytical. In developing indices designed to reflect a

given market, we develop methodologies which include a detailed description of how S&P Dow

Jones Indices intends to measure the given market, including how it will choose index

constituents, how those constituents will be weighted, and other relevant information about how

the index will be calculated, including our ability to exercise judgment in maintaining the index.

Transparency is a core principle to S&P Dow Jones Indices; the market demands it. Benchmarks

in the highly-competitive index industry are not “set”. Once S&P Dow Jones Indices has

developed an index, the market, not S&P Dow Jones Indices, any of its competitors, nor any

other entity external to the markets, determines whether it will be adopted as a benchmark. That

is for the market to decide based on the needs of market participants. As an independent index

provider, S&P Dow Jones Indices has an incentive to publish the best product possible according

to its established policies and procedures, with the hope that it will be adopted as a benchmark by

the market.

3. What measures should Administrators take to ensure the integrity of information used

in Benchmarking-setting and that the data is bona fide? Please highlight any additional

measures required where Benchmarks are survey based. Please also comment on each

of the factors identified in the discussion on the „vulnerability of data inputs‟ such as

voluntary submission, discretion exercised by Administrators. Are these measures

adequately reflected in the discussion of roles and responsibilities of the Administrator

discussed in section E?

S&P Dow Jones Indices is an independent index provider, and does not choose which of its

indices will be used as Benchmarks. In developing and maintaining its indices, however, we

believe there are certain core principles that are essential to developing and maintaining the

indices which S&P Dow Jones publishes, and to maintaining our reputation as an industry leader

in the index industry. The first such attribute is independence. We are independent and separate

from market participants, product providers and government entities. S&P Dow Jones Indices

does not participate in the markets it measures and has no vested interest in the value of any of

its indices at any given time. We do not create, manage, issue, trade or clear any index-linked

investment product or derivative. The second principle is innovation. S&P Dow Jones Indices

has made significant investments in technology and other product innovations over the decades

in order to develop and maintain its industry-leading indices and constantly create new ones.

Those indices are then licensed to a wide variety of exchanges and financial institutions through

intellectual property licenses in order to be used for a diverse offering of financial products. In

turn, these investments have contributed to the continued growth of financial markets in both

developed and developing markets by allowing investors additional choice in the types of index-

linked investment products available to them. The third characteristic is transparent systems and

processes. S&P Dow Jones Indices provides broad access to its methodologies and research, and


the broad dissemination of our indices helps participants understand the markets in which they

operate. The fourth characteristic consists of integrity, oversight and governance. S&P Dow

Jones Indices has robust independent oversight functions charged with: (a) reviewing its

methodologies to ensure they meet stated objectives and continue to address market needs

effectively and credibly; (b) publishing and adhering to a transparent construction and

calculation methodology; (c) ensuring that editorial functions, including index development,

calculation and maintenance, are appropriately firewalled from commercial functions; (d)

employing rigorous compliance practices designed to prevent inappropriate behavior and

conflicts of interest; and (e) obtaining data and submissions from reputable sources and

monitoring of inbound and outbound data and sources to make sure they continue to meet our

high standards. S&P Dow Jones Indices believes its benchmarks adhere to these principles. In

addition to the principles outlined above, S&P Dow Jones Indices also believes that market

participants want to be sure that an index is produced by a dependable index provider with a

perceived commitment to the index before a given index will be adopted for use as a benchmark,

and therefore the stability and reputation of the index provider is also of critical importance to

whether the index will be adopted by the market as a benchmark.

S&P Dow Jones Indices obtains transactional price data from various vendors, usually in the

form of a data feed from the vendors and/or pricing services (e.g., IDC, Bloomberg, Thomson

Reuters), subject to data license agreements. While in these instances there are no eligibility

requirements per se, in instances where S&P Dow Jones Indices is obtaining data through such

an aggregator or pricing service, we ensure that the data providers are established reputable data

providers with a proven track record of providing robust data sets. In certain cases, the

information provided by the data aggregators may not be exchange price data, but rather other

types of aggregated data, such as of closed home sales from county clerks or other similar

sources, as in the case of the S&P/Case-Shiller Home Price Indices. These data are also provided

through the use of reputable data aggregators with established reputations (e.g., Fiserv). S&P

Dow Jones Indices obtains representations with regard to the rights to use such data, and the data

are often from the same data providers which supply S&P Dow Jones Indices with data for its

own proprietary indices.

In some cases, S&P Dow Jones Indices, like other index providers, uses data provided by a

pricing service, such as in the case of its bond indices. In certain other instances, as in the case

of the S&P Health Care Economic Indices, S&P Dow Jones Indices will take feeds from

government data sources (e.g., unemployment rates, employee benefit costs).

Certain of our custom index clients used “self-marked” indices, whereby they provide the data or

direct S&P Dow Jones Indices as to which data to use for the construction of the index. These

indices are not S&P branded. In all cases, we have a system of checks and balances to ensure

that the data provided by our data vendor is robust and dependable, including redundancy of

price information and the ability to confirm the accuracy of a price with the underlying source

(e.g., the New York Stock Exchange) if there is a question about a specific datum.

S&P Dow Jones Indices does not obtain information based on estimates through the use of

surveys and therefore expresses no view on how survey data should be used in benchmarks.


4. What measures should Submitters implement to ensure the integrity of information

provided to Administrators? Are these measures adequately reflected in the discussion

of a code of conduct for Submitters discussed in section E? In particular, should

Submitters submit all input data and not a selection of such data so as to maximise the

representation of the underlying market? Please comment on any practical issues that

compliance with such an approach may give rise to.

Administrators should review their submission processes on an ongoing basis to ensure they are

robust. S&P Dow Jones has a system of checks and balances to ensure that the data provided by

our data vendors are robust and dependable, including redundancy of price information and the

ability to confirm the accuracy of a price with the underlying source (e.g., the New York Stock

Exchange) if there is a question about a specific datum. The Submitters should have processes

and procedures to ensure that the Administrator can confirm this information. Most data vendors

are not contractually obligated to provide any certain level or amount of data. In the case of data

vendors who supply information about securities transactions from exchanges, generally all

trades and market activities across all trading venues are included in the feed. S&P Dow Jones

Indices believes the timeliness of data delivery is important, therefore expecting that information

be delivered in a timely manner.

5. What level of granularity with regard to the transparency of Methodologies would

enable users to assess the credibility, representativeness, relevance and suitability of a

Benchmark on an on-going basis and its limitations with respect to their intended use?

Relevant factors could include; criteria and procedures used to develop the

Methodology, type of data used, how data is collected, relative weighting of data used,

how and when judgement is used, contingency measures (e.g., methods when

transaction data is unavailable etc), publication of information supporting each

Benchmark determination, etc. Please provide examples where you consider there are

currently significant gaps in the provision of this information.

S&P Dow Jones Indices has robust policies and procedures designed to ensure the integrity of its

indices and has detailed methodologies which allow users to understand how the indices are

constructed and calculated. Transparency is a core value at S&P Dow Jones Indices; we provide

broad access to our methodologies and research because we believe the dissemination of such

information helps participants understand the markets in which they operate.

Indeed, our methodologies are publicly available on our website at: http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-

Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3Dmethodology-sp-us-

indices.pdf&blobheadername2=Content-

Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-

type&blobwhere=1244125623286&blobheadervalue3=UTF-8

S&P Dow Jones firmly believes that the detailed nature of its published methodologies is

sufficient to allow users to assess the credibility, representativeness, relevance and suitability of

its indices on an on-going basis.

http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3Dmethodology-sp-us-indices.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1244125623286&blobheadervalue3=UTF-8






Furthermore, S&P Dow Jones Indices has robust independent oversight functions charged with:

(a) reviewing its methodologies to ensure they meet its stated objectives and continue to address

market needs effectively and credibly; (b) publishing and adhering to a transparent construction

and calculation methodology; (c) ensuring that editorial functions, including index development,





high standards. S&P Dow Jones Indices believes its benchmarks adhere to these principles.

S&P Dow Jones Indices methodologies, policies and procedures also contain information

regarding what will occur if data are not available. If Methodologies used by other Benchmark

providers do not meet these standards, there could be gaps in the methodologies associated with

such Benchmarks.

6. What steps should an Administrator take to disclose to Market Participants and

other stakeholders the contingency measures it intends to use in conditions of market

disruption, illiquidity or other stresses?

S&P Dow Jones Indices methodologies, policies and procedures contain information regarding

what will occur in the case of market disruption, if data are not available. We also engage in

dialog with market participants through Index Advisory Committees, which are made up of

various users of indices published by S&P Dow Jones Indices’ (e.g., pension funds, financial

institutions, etc.) and voluntarily engage with regulatory bodies to discuss contingency measures.

7. What steps should an Administrator take to notify Market Participants of material

changes to a Benchmark Methodology (including to Benchmark components) and to

take their feedback into account?

S&P Dow Jones announces changes to its methodologies publicly and broadly. In developing

indices designed to reflect a given market, S&P Dow Jones Indices creates methodologies which

include a detailed description of how we intend to measure the given market, how it will choose

index constituents, how those constituents will be weighted, and other relevant information about

how the index will be calculated, as well as how S&P Dow Jones Indices will exercise its

judgment in maintaining the index. While our methodologies are transparent and publicly

available, including changes to them, index governance does include a degree of judgment in

applying those methodologies. For example, S&P’s U.S. Indices such as the S&P 500 are

maintained by the U.S. Index Committee, which meets monthly to review such things as pending

corporate actions that may affect index constituents, statistics comparing the composition of the

indices to the market, companies that are being considered as candidates for addition to an index,

and any significant market events. In addition, the Index Committee may revise index policy

covering rules for selecting companies, treatment of dividends, share counts or other matters.

S&P Dow Jones Indices considers information about changes to its indices and related matters to

be potentially market moving and material and therefore all Index Committee discussions are

confidential. To reiterate, however, our methodologies, processes and procedures are transparent


and open to the public. As noted above, our methodologies are publicly available on our website

at: http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-

Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3Dmethodology-sp-us-

indices.pdf&blobheadername2=Content-

Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-

type&blobwhere=1244125623286&blobheadervalue3=UTF-8

As a note, even rules based indices demand a level of subjectivity as rules need to be maintained

dynamically.

S&P Dow Jones Indices regularly engages with market participants through Index Advisory

Committees to seek input into its index methodologies and proposed changes, although retains

independent judgment as to whether to implement suggestions by market participants.

8. How often should the Administrator review the design and definition of the Benchmark

to ensure that it remains representative?

While, as described above, S&P Dow Jones Indices regularly reviews its methodologies to be

sure they represent best practices, market conditions are ever changing and do not follow any

prescribed time cycle. For example, the U.S. Index Committee meets once a month, but often

must meet more often as market events dictate.

9. The Consultation Report discusses a number of potential conflicts of interest that

may arise at the level of the Submitters, between Submitters at different entities, and

between Submitters, Administrators and other third parties. Are there other types of

conflicts of interest that have not been mentioned that you consider may arise? If so,

how best should these conflicts of interest be addressed? Are the measures discussed in

the Consultation Report sufficient to address potential conflicts of interests at the level

of the Submitters, between Submitters at different entities, and between Submitters,

Administrators and other third parties?

As stated above, S&P Dow Jones Indices has robust policies and procedures in place designed to

ensure the integrity of its indices, along with independent oversight functions charged with: (a)

reviewing its methodologies to ensure they meet its stated objectives and continue to address

market needs effectively and credibly; (b) publishing and adhering to a transparent construction

and calculation methodology; (c) ensuring that editorial functions, including index development,





high standards. S&P Dow Jones Indices believes its benchmarks adhere to these principles.

Importantly, S&P Dow Jones does not create, distribute, sponsor, trade or settle investment

products.







It is important to note that S&P Dow Jones Indices differs fundamentally from the British

Bankers’ Association, and its indices are fundamentally different from LIBOR. The inputs are

taken from a regulated exchange or otherwise constituted from actual market data rather than an

estimate or opinion of the price at which a transaction might take place made by a small panel of

interested parties. Further, as stated above, our publicly available methodologies clearly explain

how our indices are created, calculated and maintained.

10. Do you agree that the Administrator should establish an oversight committee or

other body to provide independent scrutiny of all relevant activities and management of

conflicts of interest? Please comment if and why any different approaches might be

appropriate for different kinds of Benchmarks. What is the minimum level of

independent representation this committee or body should include?

While S&P Dow Jones Indices supports the promotion of best practice standards, and we have

adopted such standards in our own operations, we do not believe that it is necessary to establish

definitive governance requirements through regulation or other similar external oversight. The

disadvantage of such external oversight is that it could drive up cost for consumers if such

oversight is overly intrusive or onerous and could stifle innovation of new indices, giving

investors less choice and providing less transparency to markets, including developing markets.

Such oversight could also curtail the reputation for independence that is vitally important to the

markets. Indeed, market participants want to be sure that benchmarks are not influenced by

external factors. S&P Dow Jones Indices is confident that its own policies and procedures

comprise a robust self-regulation of its governance, as its reputation for such is the cornerstone

of its business and the market demands it.

11. Should the Submitters establish accountability procedures to assess their

compliance with operational standards and scrutiny of Benchmark submissions?

Submitters submitting data to S&P Dow Jones Indices should have procedures to ensure that the

data they submit are sound. In the case of S&P Dow Jones Indices, transactional price data are

obtained from various vendors, usually in the form of a data feed from the vendors and/or pricing

services (e.g., IDC, Bloomberg, Thomson Reuters), subject to data license agreements. In

instances where S&P Dow Jones Indices is obtaining data through such an aggregator or pricing

service, we ensure that the data providers are established reputable data providers with a proven

track record of providing robust data sets. In certain cases, the information provided by the data

aggregators may not be exchange price data, but rather other types of aggregated data, such as of

closed home sales from county clerks or other similar sources, as in the case of the S&P/Case-

Shiller Home Price Indices. These data are also provided through the use of reputable data

aggregators with established reputations (e.g., Fiserv). In some cases, S&P Dow Jones Indices,

like other index providers, uses data provided by a pricing service, such as in the case of its bond

indices. In certain other instances, as in the case of the S&P Health Care Economic Indices, S&P

Dow Jones Indices will take feeds from government data sources (e.g., unemployment rates,

employee benefit costs), and the data are often from the same data providers which supply S&P

Dow Jones Indices with data for its own proprietary indices. Certain of our custom index clients

used “self-marked” indices, whereby they provide the data or direct S&P Dow Jones Indices as


to which data to use for the construction of the index. These indices are not S&P branded. S&P

Dow Jones Indices obtains representations with regard to the rights to use such data. In all cases,

while we do not attempt to dictate Submitters operational standards, we have a system of checks

and balances to ensure that the data provided by our data vendor is robust and dependable,

including redundancy of price information and the ability to confirm the accuracy of a price with

the underlying source (e.g., the New York Stock Exchange) if there is a question about a specific

datum.

12. Are the measures discussed in the Consultation Report (e.g. Audit Trail, external

audits and requirement for regulatory cooperation) sufficient to ensure the

accountability of Submitters? Should additional mechanisms be considered?

Many of the entities contributing price data used in the indices published by S&P Dow Jones

Indices via our robust and reliable data vendors or financial institutions are regulated exchanges

or other regulated entities. We think that creating additional mechanisms with regard to

submissions will simply create an additional unnecessary layer of oversight and, depending on

the mechanisms, could disrupt contractual arrangements with our data vendors (e.g., IDC), with

no appreciable benefit to the quality or integrity of the data we receive. It could also create

disincentives for data vendors to enter into such agreements with index providers, thereby

reducing the number of indices available to the public. Indices driven by prices obtained from

voluntary submitters could see participation wane if too much regulatory activity is undertaken,

creating less robust data.

13. How frequently should Submitters be subject to audits? Should these be internal

or external audits?

See S&P Dow Jones Indices Response to Consultation Question 12.

14. Are the measures discussed in the Consultation Report (e.g., complaints process,

Audit Trail, external audits and requirement for regulatory cooperation) sufficient to

ensure accountability of the Administrator? Should additional mechanisms be

considered? S&P Dow Jones Indices does believe that it has robust policies and procedures, including audit

procedures, which are sufficient to ensure that the indices it publishes are produced with integrity

and care. Indeed, the processes by which S&P Dow Jones Indices develops and maintains its

indices, including in developing its methodologies and any associated decision making, all of

which are well-documented and function effectively, are necessary in order to maintain its

reputation as a leader in the independent index provider industry. S&P Dow Jones Indices

welcomes the opportunity to discuss its policies and procedures with policymakers and

regulators


15. If recommended, how frequently should Administrators be subject to audits? Should

these be internal or external audits?


16. Is public self-certification of compliance with industry standards or an industry

code another useful measure to support accountability? This approach might also

contemplate explanation of why compliance may not have occurred. If so, what self-

certification requirements would make this approach most reliable and useful to

support market integrity.

While S&P Dow Jones Indices supports the promotion of best practice standards, and has

adopted such standards in our own operations, we do not believe it necessary to establish

definitive governance and transparency requirements through regulation. S&P Dow Jones

Indices is confident that its own policies and procedures comprise a robust self-regulation of its

governance and transparency, as its reputation for such is the cornerstone of its business and the

market demands it. It, along with other index publishers who are members of the Index Industry

Association, are currently contemplating an index industry code, and as part of the process is

considering the concept of self-certification of compliance with such a code.

17. The Consultation Report discusses elements of a code of conduct for Submitters. Are

the measures discussed (e.g., adequate policies to verify submissions, record

management policies that allow the Submitter to evidence how a particular submission

was given, etc.) sufficient to address potential conflicts of interest identified or do you

believe that other control framework principles should be added?

S&P Dow Jones Indices does not believe that additional codes of conduct are necessary for

Submitters. Many of the entities contributing price data used in the indices published by S&P

Dow Jones Indices, via our data vendors or financial institutions, are regulated exchanges or

other regulated entities. We think that creating a code of conduct for these providers is

unnecessary. Among other things, such a code of conduct in the case of submitters to S&P Dow

Jones could create disincentives for data vendors to enter into such agreements with index

providers, thereby reducing the number of indices available to the public. Indices driven by

prices obtained from voluntary submitters could see participation wane if too much regulatory

activity is undertaken, creating less robust pricing.

18. What would be the key differences in the code of conduct for Benchmarks based

on different input types, for example transactions, committed quotes and/or expert

judgement?

S&P Dow Jones Indices has a system of checks and balances that apply to all input types to

ensure that the data provided by our data vendors is robust and dependable, including

redundancy of price information and the ability to confirm the accuracy of a price with the

underlying source (e.g., the New York Stock Exchange) if there is a question about a specific

datum. For example, with regard to data received consisting of actual transactions, we have

routine error-checking procedures; with regard to indices driven by committed quotes, we have


periodic verification procedures from our pricing vendors. As such, S&P Dow Jones Indices is

confident that its own policies and procedures comprise a robust self-regulation of its governance

and transparency, and no third-party prescribed code of conduct for Submitters is necessary.

19. What are the advantages and disadvantages of making Benchmark submissions a regulated

activity?

S&P Dow Jones Indices does not believe that Benchmark submissions should be a regulated

activity and that any perceived benefits would be far outweighed by the significant disadvantages

of doing so. Many of the entities contributing price data used in the indices published by S&P

Dow Jones Indices, via our data vendors or financial institutions, are regulated exchanges or

other regulated entities. Those sources that are not are vendors providing robust and dependable

data. Apart from creating an unnecessary additional regulatory layer, regulating contributions of

such data used for S&P Dow Jones Indices could disrupt contractual arrangements with our data

vendors (e.g., IDC), with no appreciable benefit to the quality or integrity of the data we receive,

and could create disincentives for data vendors to enter into such agreements with index

providers, thereby reducing the number of indices available to the public. Indices driven by

prices obtained from voluntary submitters could see participation wane if too much regulatory

activity is undertaken. Indeed, for less liquid asset classes like fixed income, the result could be

far less transparency, to the detriment of all market participants.

20. What are the advantages and disadvantages of making Benchmark Administration a

regulated activity?

S&P Dow Jones Indices does not believe that Benchmark Administration should be a regulated

activity and that any perceived benefits would be far outweighed by the significant disadvantages

of doing so. As a publisher whose publications are voluntarily used by market participants and

others worldwide, S&P Dow Jones Indices is not regulated in any country, nor do we believe that

any regulation is necessary. The financial index provider industry is a highly competitive

industry that provides high quality, substitutable indices, which are calculated according to

publicly available, transparent index methodologies. That competition is a natural check and

balance in that multiple competitors are provided with incentives to publish indices which reflect

a given market to the best of their abilities. In particular, while S&P Dow Jones Indices

welcomes the opportunity to discuss its policies and procedures with policymakers and

regulators, regulation of the processes by which S&P Dow Jones Indices develops and maintains

its indices, including in developing its methodologies and any associated decision making, would

not only infringe its rights as a publisher and proprietor of its intellectual property, but would

also be an intrusion into the very independence that makes S&P Dow Jones Indices a valuable

resource to the market as an impartial market observer. We believe that the markets are the best

arbiter of what indices and index providers are best suited to become benchmarks. For example,

the S&P 500 is a widely-used benchmark precisely because it has a long track record of

effectively reflecting the U.S. large cap market, without a vested interest in the value of the index

at any given time and without undue external influences that could bias the outcome. While

S&P Dow Jones Indices supports the promotion of best practice standards, and we have adopted

such standards in our own operations, we do not believe that regulation is necessary. In fact, we

believe overly prescriptive regulatory actions could drive up cost for and stifle innovation of new

indices, thereby giving investors less choice and providing less transparency to markets,


including developing markets. Regulation would also likely curtail the reputation for

independence that is vitally important to the markets. Indeed, market participants want to be

sure that benchmarks are not influenced by external factors. Recognizing that it is technically an

“advantage” to existing index providers in that it would reduce competition, overly prescriptive

regulation could also dissuade new index providers from entering the market or cause smaller

existing firms to cease doing business, thereby reducing transparency into the capital markets

and reducing investor choice. S&P Dow Jones Indices is confident that its own policies and

procedures comprise a robust self-regulation of its governance and transparency, as its reputation

for such is the cornerstone of its business and the market demands it.

21. Do you agree with the factors identified for drawing regulatory distinctions? What other

factors should be considered in determining the appropriate degree of oversight of

Benchmark activities (discussed in Chapter 3)? Please provide specific recommendations

as to how the distinctions discussed in Chapter 3 should inform oversight mechanisms.

See S&P Dow Jones Indices Response to Consultation Questions 20 and 22.

22. What distinctions, if any, should be made with regard to Benchmarks created by third

parties and those created by regulated exchanges?

S&P Dow Jones considers independence of a benchmark Administrator to be particularly

important and has strong policies and procedures designed to ensure the integrity of its indices,

including its independence. It has no interest in the value of its indices. S&P Dow Jones Indices

has robust independent oversight functions charged with: (a) reviewing its methodologies to

ensure they meet its stated objectives and continue to address market needs effectively and

credibly; (b) publishing and adhering to a transparent construction and calculation methodology;

(c) ensuring that editorial functions, including index development, calculation and maintenance,

are appropriately firewalled from commercial functions; (d) employing rigorous compliance

practices designed to prevent inappropriate behavior and conflicts of interest; and (e) obtaining

data and submissions from reputable sources and monitoring of inbound and outbound data and

sources to make sure they continue to meet our high standards. S&P Dow Jones Indices believes

its benchmarks adhere to these principles. Importantly, S&P Dow Jones does not create,

distribute, sponsor, trade or settle investment products. This contributes to the independence of

S&P Dow Jones Indices, including because we do not have a vested interest in the value of the

index at any given time and without undue external influences that could bias the outcome.

S&P Dow Jones Indices believes these core principles to be essential, and would make a

distinction between its indices and any benchmarks which do not demonstrate such principles,

including independence.

23. Assuming that some form of enhanced regulatory oversight will be applied to an asset

class Benchmark, should such enhanced oversight be applied to the Submitters of data as

well as the Administrator?



24. What are the considerations that should be taken into account if the Submitters to a

Benchmark operate in an otherwise unregulated market (e.g., physical oil, gold or

agricultural commodity markets) and are not otherwise under any obligation to submit

data to an Administrator?

S&P Dow Jones Indices obtains transactional price data from various vendors, usually in the

form of a data feed from the vendors and/or pricing services (e.g., IDC, Bloomberg, Thomson

Reuters), subject to data license agreements. In instances where S&P Dow Jones Indices is

obtaining data through such an aggregator or pricing service, we ensure that the data providers

are established reputable data providers with a proven track record of providing robust data sets.

In certain cases, the information provided by the data aggregators may not be exchange price

data, but rather other types of aggregated data, such as of closed home sales from county clerks

or other similar sources, as in the case of the S&P/Case-Shiller Home Price Indices. These data

are also provided through the use of reputable data aggregators with established reputations (e.g.,

Fiserv). In some cases, S&P Dow Jones Indices, like other index providers, uses data provided

by a pricing service, such as in the case of its bond indices. The data are often from the same data

providers which supply S&P Dow Jones Indices with data for its own proprietary indices. S&P

Dow Jones Indices obtains representations with regard to the rights to use such data. In certain

other instances, as in the case of the S&P Health Care Economic Indices, S&P Dow Jones

Indices will take feeds from government data sources (e.g., unemployment rates, employee

benefit costs). Certain of our custom index clients used “self-marked” indices, whereby they

provide the data or direct S&P Dow Jones Indices as to which data to use for the construction of

the index. These indices are not S&P branded. In all cases, we have a system of checks and

balances to ensure that the data provided by our data vendor is robust and dependable, including

redundancy of price information and the ability to confirm the accuracy of a price with the

underlying source (e.g., the New York Stock Exchange) if there is a question about a specific

datum.

As long as steps are taken to ensure that data used are robust and dependable, S&P Dow Jones

does not feel that a distinction needs to be made between benchmarks which operate in an

otherwise unregulated market.

25. Do you believe that a code of conduct, either on its own or in conjunction with other

measures outlined within the report, would provide sufficient oversight to mitigate the risks

that have been identified in Chapter 2? What measures should be established in

conjunction with a code of conduct? For which Benchmarks is this approach suitable?

While S&P Dow Jones Indices supports the promotion of best practice standards, and has

adopted such standards in our own operations, we do not believe that it is necessary to establish

definitive governance and transparency requirements through a prescribed code of conduct. S&P

Dow Jones Indices is confident that its own policies and procedures comprise a robust self-

regulation of its governance and transparency, as its reputation for such is the cornerstone of its

business and the market demands it. It, along with other index publishers who are members of

the Index Industry Association, are currently contemplating an index industry code, and believe

that such a self-governing code would indeed provide sufficient oversight to mitigate the risks


identified in Chapter 2.

26. What other measures outlined in the report, if any, should apply in addition to a code of

conduct? If you believe a code of conduct, either on its own or in conjunction with other

measures outlined within the report, would provide sufficient oversight to mitigate the risks

that have been identified in Chapter 2, what type of code of conduct should apply (e.g., a

voluntary code of conduct, an industry code of conduct submitted to and approved by the

relevant Regulatory Authority, a code of conduct developed by IOSCO, etc.)?


27. Do you believe that the creation of a Self-Regulatory Organisation (.e.g., one that exercises

delegated governmental powers) and itself subject to governmental oversight, whether or

not in conjunction with industry codes is a viable alternative for sufficient oversight and

enforcement to mitigate the risks that have been identified in Chapter 2? For which

Benchmarks is this approach suitable? What if any complementary arrangements might be

necessary, such as new statutory obligations or offences for Administrators and/or

Submitters?


28. Do you believe that, for some Benchmarks, reliance upon the power of securities

and derivatives regulators to evaluate products that reference a Benchmark or exercise

their market abuse or false reporting powers creates sufficient incentives for the

Administrator to ensure sure that Submitters comply with a code of conduct?

For independent index providers such as S&P Dow Jones Indices, there is already sufficient

incentive to audit and/or verify the data in real-time and make any necessary corrections

immediately. The quality of our product depends on ensuring the accuracy of the data. No

additional incentive is necessary.

29. Do you believe that users of a Benchmark, specifically, the users who are regulated

or under the supervision of a national competent authority should have a role in

enhancing the quality of Benchmarks? Which form should this role take: on a voluntary

basis (e.g. the user being issued a statement that will only use Benchmarks that follow

IOSCO principles), or on a compulsory basis (e.g., the competent authority could

request that users who are registered under their jurisdiction should only use

Benchmarks that fulfil IOSCO principles)?

Once S&P Dow Jones Indices has developed an index, the market, not S&P Dow Jones Indices,

nor any of its competitors or other external market entities, determines whether it will be adopted

as a benchmark based on the needs its participants. As an independent index provider, S&P Dow

Jones Indices has an incentive to publish the best product possible according to its established

policies and procedures, with the hope that it will be adopted as a benchmark by the market.


30. Do you agree that a Benchmark should be anchored by observable transactions

entered into at arm‟s length between buyers and sellers in order for it to function as a

credible indicator of prices, rates or index values? How should Benchmarks that are

otherwise anchored by bona-fide transactions deal with periods of illiquidity due to

market stress or long-term disruption?

S&P Dow Jones Indices is aware that, in the wake of the LIBOR scandal, there has been

significant attention paid to the concept of having Benchmark providers rely solely or primarily

on transaction data when constructing Benchmarks. While S&P Dow Jones Indices often obtains

transactional price data from various vendors, usually in the form of a data feed from the vendors

and/or pricing services (e.g., IDC, Bloomberg, Thomson Reuters), in certain cases, the

information provided by the data aggregators may not be exchange price data, but rather other

types of aggregated data, such as of closed home sales from county clerks or other similar

sources, as in the case of the S&P/Case-Shiller Home Price Indices. These data are also provided

through the use of reputable data aggregators with established reputations (e.g., Fiserv). In some

cases, S&P Dow Jones Indices, like other index providers, uses data provided by a pricing

service, such as in the case of its bond indices. The data are often from the same data providers

which supply S&P Dow Jones Indices with data for its own proprietary indices. S&P Dow Jones

Indices obtains representations with regard to the rights to use such data. In certain other

instances, like in the case of the S&P Health Care Economic Indices, S&P Dow Jones Indices

will take feeds from government data sources (e.g., unemployment rates, employee benefit

costs). Certain of our custom index clients used “self-marked” indices, whereby they provide the

data or direct S&P Dow Jones Indices as to which data to use for the construction of the index.

These indices are not S&P branded. In all cases, we have a system of checks and balances to

ensure that the data provided by our data vendor is robust and dependable, including redundancy

of price information and the ability to confirm the accuracy of a price with the underlying source

(e.g., the New York Stock Exchange) if there is a question about a specific datum.

Certain categories of indices based on robust methodologies and data sets that help to bring transparency to the markets, such as particular types of bond indices, are not based solely on actual arm’s length transactions, but a combination of transactions, bids and offers, and other actual market information. Not having these tools available to investors would be detrimental to global financial markets as their absence could diminish transparency and liquidity.

31. Are there specific Benchmarks for which you consider that observable transactional

data is not an appropriate criterion or the sole criterion? If so, please provide a

description of such Benchmarks and what value you think such Benchmarks provide?



32. What do you consider the limitations or value in Benchmarks referencing asset

classes and underlying interests where there is limited liquidity? Please describe the

uses and value of such Benchmarks in the financial markets.

S&P Dow Jones Indices generally uses data provided by data aggregators or pricing services in

its indices and is a price taker, not a price maker. In some cases, as with bond indices, the

underlying prices provided by a pricing service may be a mixture of concluded transactions, bids

and offers and other market information, in markets where there are few concluded transactions,

and in instances where there may therefore be limited liquidity. While S&P Dow Jones Indices

does not participate in the price discovery process in such instances, its view is that such price

assessments using estimated data should be based on market facts rather than opinion or

speculation. The quality and representative nature of data inputs in such circumstances are

important in determining a price that is representative of true market value.

33. Do you agree that the greatest weight should be given to transactions in the

construction of a Benchmark and that non-transactional information should be used

as an adjunct (e.r., as a supplement) to transactions?


34. What factors and how often should Administrators (or others) consider in

determining whether the market for a current Benchmark‟s underlying interest is no

longer sufficiently robust? What effective methods of review could aid in determining

the insufficiency of trading activity within the market for a Benchmark‟s underlying

interest?

An index provider should take responsibility for determining when it has enough data available

to publish an index according to its methodology. In the case of S&P Dow Jones Indices, if we

find that inadequate data are available, we will not publish the index.

35. What precautions by Benchmark Administrators, Submitters, and users can aid

Benchmark resiliency during periods of market stress, mitigating the potential need for

market transition?

Having Index Committees with some amount of editorial discretion is a good precaution to aid in

resiliency during periods of market stress because it in fact allows flexibility and sound judgment

to be exercised so that a Benchmark remains representative.

36. What elements of a Benchmark “living will,” drafted by a Benchmark Administrator, should be prioritised?

S&P Dow Jones Indices takes the term “living will” in the context of the Consultation to mean contingency plans in the event of a loss of data source, calculation engine, transmission, or other disaster scenario. S&P Dow Jones agrees that index providers should be prepared for such contingencies. Many elements of these plans are competitively sensitive in nature and should not necessarily be made public, however, the general existence of contingency plans is an


appropriate disclosure item. If, on the other hand, “living will” is taken to mean how and index would be administered in the index provider were unable to do so for some reason, including its demise, S&P Dow Jones Indices does not feel this is something which is appropriate to disseminate. Because such a “living will” would include S&P Dow Jones’ valuable intellectual property, we should not be forced to disclose such information publicly. Presumably most established index businesses, regardless of their corporate entity, will continue to calculate their established indices in any event, making a Living Will irrelevant in this context

37. By what process, and in consultation with what bodies, should alternatives be

determined for Benchmark replacement?

S&P Dow Jones Indices believes the market is best-suited to determine which indices to use

as benchmarks and for what purpose.

38. What characteristics should be considered when determining an appropriate

alternate Benchmark? (Examples below) Should any of these factors be prioritised?

o Level and Type of Market Activity

o Diversity/Number of Benchmark Submitters

o Length of historical price series for the Benchmark alternative

o Benchmark Methodology

o Existing regulatory oversight

o Existing enforcement authority

o Volume, tenors and contract structure of the legacy trades

The user of the benchmark should determine what characteristics should be considered

when determining which ones to utilize. Any given index is merely one tool used in a free

market in order to help achieve better understanding of a given asset class. S&P Dow Jones

Indices endeavors to make clear what the index is intended to reflect through its published

methodologies and open processes and procedures; we do not endeavor to suggest how or in

what circumstances the index should be used. The specific uses for which its indices are

used are broad and can vary depending on the circumstances. The market should decide

appropriate alternate benchmarks.

39. What conditions are necessary to ensure a smooth transition between market

Benchmarks?

S&P Dow Jones Indices believes the markets are best suited to adopt new benchmarks and

ensure a smooth transition between benchmarks without external pressure or mandates.

40. What considerations should be made for legacy contracts which reference a

Benchmark in transition? To what extent does a substantive legacy book preclude

transition away from a Benchmark? What provisions can be included in [new and

existing] contract specifications which would mitigate concerns if and when a

Benchmark transitions occurs?

N/A


41. How should a timeframe be determined for market movement between a Benchmark

and its replacement? What considerations should be made for:

o Altered regulatory oversight?

o Infrastructure development/modification?

o Revisions to currently established contracts referencing the previous Benchmark?

o Revisions to the Benchmark Administrator?

o Risk to contract frustration

S&P Dow Jones Indices believes the markets are best suited to determine a timeframe for

movement between a benchmark and its replacement without external pressure or mandates.

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