Policy Statement to Regulation 25-102 respecting Designated Benchmarks and Benchmark Administrators

POLICY STATEMENT TO REGULATION 25-102 RESPECTING DESIGNATED BENCHMARKS AND BENCHMARK ADMINISTRATORS
PART 1
GENERAL COMMENTS
Introduction
This policy statement (the “Policy Statement”) provides guidance on how the Canadian Securities Administrators (“we”) interpret various matters in Regulation 25-102 respecting Designated Benchmarks and Benchmark Administrators (insert the reference) (the “Regulation”). Except for Parts 1 and 8, the numbering and headings of Parts, sections and subsections in this Policy Statement generally correspond to the numbering and headings in the Regulation. Any general guidance for a Part or section appears immediately after the Part or section name. Any specific guidance on a section or subsection follows any general guidance. If there is no guidance for a Part or section, the numbering in this Policy Statement will skip to the next provision that does have guidance. Introduction to the Regulation Designation of Benchmarks and Benchmark Administrators Securities legislation provides for the designation of a benchmark and a benchmark administrator. In all Canadian jurisdictions that have adopted the Regulation, a benchmark administrator or a regulator may apply to a securities regulatory authority to request the designation of a benchmark or a benchmark administrator. In Alberta, British Columbia and Québec, the securities regulatory authority may make the designation on its own initiative. In Québec, the decision of the securities regulatory authority to designate a benchmark has the legal effect of the benchmark administrator becoming subject to the Securities Act (chapter V-1.1). “Regulator” and “securities regulatory authority” are defined in Regulation 14-101 respecting Definitions (chapter V-1.1, r. 3) We expect that a regulator may apply to a securities regulatory authority to request the designation of a benchmark or benchmark administrator, or in Alberta, British Columbia or Québec, the securities regulatory authority may make the designation on its own initiative, on public interest grounds, including where:

• a benchmark is sufficiently important to financial markets in Canada, or
• we become aware of activities of a benchmark administrator, benchmark
  contributor or benchmark user that raise public interest concerns and conclude that the administrator and benchmark in question should be designated. Where the regulator intends to apply for the designation of a benchmark or benchmark administrator, or in Alberta, British Columbia or Québec, the securities regulatory authority intends to make the designation on its own initiative, we generally expect to give the affected benchmark administrator reasonable notice of our intention and the reasons for it. In addition, in certain jurisdictions, securities legislation provides the benchmark administrator with an opportunity to be heard and, where necessary, to provide documents before the securities regulatory authority makes its decision. Furthermore, we would generally not expect that a designation would be made without the applicable regulator or securities regulatory authority publishing an advance notice to the public. Categories of Designation The Regulation contains requirements that apply to designated benchmark administrators, benchmark contributors and certain benchmark users in respect of a

designated benchmark. In addition to requirements in the Regulation that generally apply in respect of any designated benchmark, there are additional requirements in the Regulation that apply to designated critical benchmarks and designated interest rate benchmarks. The Regulation also includes a number of exemptions from certain provisions for designated benchmarks administrators and benchmark contributors in respect of designated regulated-data benchmarks. In addition to these specific exemptions, given the interpretation provided by subsection 1(3) of the Regulation as to when input data is considered to have been "contributed", as described later in this Policy Statement, input data for regulated-data benchmarks would not generally be considered to be contributed. Therefore, certain requirements that are only applicable if there is a contributor or if input data is contributed would not apply to a benchmark that is designated as a regulated-data benchmark. When designating a benchmark, a securities regulatory authority will issue a decision document designating the benchmark as a designated benchmark. If applicable, the decision document will indicate if the benchmark is also designated as a designated critical benchmark, a designated interest rate benchmark or a designated regulated-data benchmark. It is possible that a designated benchmark will receive more than one designation. For example,

• a designated interest rate benchmark may also be designated as a designated
  critical benchmark, and
• a designated regulated-data benchmark may also be designated as a
  designated critical benchmark.
  As discussed below, we expect a benchmark administrator that applies for designation of a benchmark to provide written submissions on whether the administrator considers the benchmark to be a critical benchmark, an interest rate benchmark or a regulated-data benchmark. When designating a benchmark or benchmark administrator, a securities regulatory authority will issue a decision document that may designate the benchmark administrator as a designated benchmark administrator of one or more designated benchmarks. We expect that a benchmark administrator that applies under securities legislation for the designation of the administrator or a benchmark will provide written submissions that contain the same information as that required by Form 25-102F1 Designated Benchmark Administrator Annual Form and Form 25-102F2 Designated Benchmark Annual Form in a format that is consistent with those forms. If we consider it would be in the public interest, or not be prejudicial to the public interest, to do so, we may also apply for a change in the designation of a designated benchmark. In some jurisdictions, such a change may be made by the securities regulatory authority without application. For example, if a designated benchmark is initially designated as a designated interest rate benchmark but over time it becomes more significant to Canadian financial markets, we may apply for it to also be designated as a critical benchmark. If this were to occur, securities legislation in certain jurisdictions would provide the designated benchmark administrator with an opportunity to be heard and, where necessary, to provide documents before a decision to make such a change is made. Accordingly, we would not expect that a change in the category of designation would be made without reasonable notice being provided to the affected benchmark administrator. Furthermore, we would generally not expect that a change in the category of designation would be made without the applicable regulator or securities regulatory authority publishing an advance notice to the public. Suspending, Revoking or Cancelling a Designation or Amending or Revoking Terms and Conditions Securities legislation also provides that a securities regulatory authority may cancel or revoke, and in Alberta and Québec the securities regulatory authority may also suspend,

the designation of a designated benchmark administrator or designated benchmark or may amend or revoke the terms and conditions relating to designation. However, before doing so, securities legislation in certain jurisdictions provides the benchmark administrator with an opportunity to be heard or a right to be heard and, where necessary, to provide documents. Accordingly, we would not expect a designation would be cancelled, revoked or suspended or that terms or conditions would be amended or revoked without reasonable notice being provided to the affected benchmark administrator. Additionally, in jurisdictions where the regulator may apply to the securities regulatory authority for the cancellation or revocation of a designation of a designated benchmark administrator or designated benchmark or the amendment or revocation of terms and conditions, we would not expect to make such an application unless it would be in the public interest. Furthermore, we would generally not expect that a cancellation or revocation of a designation would be made without the applicable regulator or securities regulatory authority publishing an advance notice to the public. Definitions and Interpretation Subsection 1(1) – Definition of designated critical benchmark “Designated critical benchmark” is a benchmark that is designated for the purposes of the Regulation as a “critical benchmark” by a decision of the securities regulatory authority. In addition to general requirements in the Regulation that apply in respect of any designated benchmark, there are specific requirements in Division 1 of Part 8 of the Regulation that apply to designated critical benchmarks. Staff of a securities regulatory authority may recommend that the securities regulatory authority designate a benchmark as a “critical benchmark” if the benchmark is critical to financial markets in Canada or a region of Canada. The following two factors are among those that will be considered:
(a) the benchmark is used directly or indirectly within a combination of benchmarks as a reference for instruments or contracts or for measuring the performance of investment funds, having a total value in Canada of at least $400 billion on the basis of the range of maturities or tenors of the benchmark, where applicable; or (b) the benchmark satisfies all of the following criteria:
(i) the benchmark is used directly or indirectly within a combination of benchmarks as a reference for instruments or contracts or for measuring the performance of investment funds having a total value in one or more jurisdictions of Canada that is significant, on the basis of all the range of maturities or tenors of the benchmark, where applicable; (ii) the benchmark has no, or very few, appropriate market-led substitutes; (iii) in the event that the benchmark is no longer provided, or is provided on the basis of input data that is no longer sufficient to provide a benchmark that accurately represents that part of the market or economy the designated benchmark is intended to record, or on the basis of unreliable input data, there would be significant and adverse impacts on (A) market integrity, financial stability, the real economy, or the financing of businesses in one or more jurisdictions of Canada, or (B) a significant number of market participants in one or more jurisdictions of Canada. For the purpose of paragraph (a) and subparagraph (b)(i), staff of a securities regulatory authority will consider, among other things, the outstanding principal amount of any debt securities that reference the benchmark, the outstanding notional amount of any

derivatives that reference the benchmark, and the outstanding net asset value of any investment funds that use the benchmark to measure performance. We note that the above list is not a complete list of factors and the existence of one of these factors by itself will not necessarily determine whether a benchmark is a critical benchmark. Instead, staff intend to follow a holistic approach where all relevant factors are considered. We expect that a benchmark administrator that applies under securities legislation for the designation of a benchmark will provide, with its application, written submissions on whether the securities regulatory authority should designate the benchmark as a critical benchmark. Subsection 1(1) – Definition of designated interest rate benchmark “Designated interest rate benchmark” is a benchmark that is designated for the purposes of the Regulation as an “interest rate benchmark” by a decision of the securities regulatory authority. In addition to general requirements in the Regulation that apply in respect of any designated benchmark, there are specific requirements in Division 2 of Part 8 of the Regulation that apply to designated interest rate benchmarks. Staff of a securities regulatory authority may recommend that the securities regulatory authority designate a benchmark as an “interest rate benchmark” if the benchmark is used to set interest rates of debt securities or is otherwise used as a reference in derivatives or other instruments. Factors that will be considered include the following:
(a) the benchmark is determined on the basis of the rate at which financial institutions may lend to, or borrow from, other financial institutions, or market participants other than financial institutions, in the money market; or (b) the benchmark is determined from a survey of bid-side rates contributed by financial institutions that routinely accept bankers’ acceptances issued by borrowers and are market makers in bankers’ acceptances either directly or through an affiliate. We note that the above list is not exhaustive. We expect that a benchmark administrator that applies under securities legislation for the designation of a benchmark will provide, with its application, written submissions on whether the securities regulatory authority should designate the benchmark as an interest rate benchmark. Subsection 1(1) – Definition of designated regulated-data benchmark “Designated regulated-data benchmark” is a benchmark that is designated for the purposes of the Regulation as a “regulated-data benchmark” by a decision of the securities regulatory authority. Benchmark administrators of regulated-data benchmarks are exempted from certain governance and control requirements relating to the contribution of input data (see Division 3 of Part 8 of the Regulation). Staff of a securities regulatory authority may recommend that the securities regulatory authority designate a benchmark as a “regulated-data benchmark” if the benchmark is determined by the application of a formula from any of the following:
(a) input data contributed entirely, or almost entirely, from (i) any of the following, but only with reference to transaction data relating to securities or derivatives:
(A) a recognized exchange in a jurisdiction of Canada or an exchange that is subject to appropriate regulation in a foreign jurisdiction;

(B) a recognized quotation and trade reporting system in a jurisdiction of Canada or a quotation and trade reporting system that is subject to appropriate regulation in a foreign jurisdiction; (C) an alternative trading system that is registered as a dealer in a jurisdiction of Canada and is a member of a self-regulatory entity or an alternative trading system that is subject to appropriate regulation in a foreign jurisdiction; (D) an entity that is similar or analogous to the entities referred to in clause (A), (B) or (C) and that is subject to appropriate regulation in a jurisdiction of Canada or a foreign jurisdiction; (ii) a service provider to which the designated benchmark administrator of the designated benchmark has outsourced the data collection in accordance with section 13 of the Regulation, if the service provider receives the data entirely and directly from an entity referred to in subparagraph (i); (b) net asset values of investment funds that are reporting issuers in a jurisdiction of Canada or subject to appropriate regulation in a foreign jurisdiction. We expect that a benchmark administrator that applies under securities legislation for the designation of a benchmark will provide, with its application, written submissions on whether the regulator or the securities regulatory authority should designate the benchmark as a regulated-data benchmark. Subsection 1(1) – Definition of expert judgment “Expert judgment” is the discretion exercised by:

• a designated benchmark administrator with respect to the use of input data in
  determining a benchmark, and

• a benchmark contributor with respect to input data.
  Expert judgment may involve various activities, including:

• extrapolating values from prior or related transactions,

• adjusting values for factors that might influence the quality of data such as
  market data, economic factors, market events or impairment of a buyer or seller's credit quality, or

• assigning a greater weight to data relating to bids or offers than the weight
  assigned to a relevant concluded transaction.
  Subsection 1(1) – Definition of input data
  “Input data” is the data in respect of any measurement of one or more assets, interests or elements that is contributed, or otherwise obtained, by a designated benchmark administrator for the purpose of determining a designated benchmark. For example, input data may include estimated prices, quotes, committed quotes or other values. The reference to “or otherwise obtained” would include the following scenarios where data is “reasonably available” (within the meaning of s. 1(3) of the Regulation) on a source’s website (free of charge or behind a paywall):

• “Active” scenario – the source takes deliberate action to provide the data to a
  benchmark administrator.

• “Passive” scenario – the source simply publishes the data and is not aware
  that the benchmark administrator is using it as input data.
  Subsection 1(1) – Definitions of limited assurance report on compliance and reasonable assurance report on compliance A “limited assurance report on compliance” and a “reasonable assurance report on compliance” must be prepared in accordance with the applicable Canadian Standard on Assurance Engagements (CSAE) or the applicable International Standard on Assurance Engagements (IASE). The CSAE and ISAE require that any public accountant that prepares such a report be independent. Subsection 1(1) – Definition of transaction data “Transaction data” means the data in respect of a price, rate, index or value representing transactions between unaffiliated parties in an active market subject to competitive supply and demand forces. We consider that:

• transaction data would include published or onscreen data available to the
  public generally or by subscription, and

• the reference to “active market subject to competitive supply and demand
  forces” would include a market in which transactions take place, or are reported, between arm’s length parties with sufficient frequency and volume to provide pricing information on an ongoing basis. This reference is separate and different from any definition for accounting purposes. Subsection 1(1) – Interpretation of certain definitions Definitions of each of the following terms are considered to apply only in respect of the designated benchmark to which they pertain:

• “benchmark administrator”;

• “benchmark contributor”;

• “benchmark individual”;

• “benchmark user”;

• “contributing individual”;

• “DBA individual”;

• “designated benchmark administrator”;

• “input data”;

• “transaction data”.
  Subsection 1(3) – Interpretation of contribution of input data There are provisions in the Regulation that apply to (i) all input data or (ii) only input data that is contributed. Subsection 1(3) of the Regulation provides that input data is considered to have been “contributed” if

(a) it is not reasonably available to
(i) the designated benchmark administrator, or (ii) another person, other than the benchmark contributor, for the purpose of providing the input data to the designated benchmark administrator, and (b) it is provided to the designated benchmark administrator or the other person referred to in subparagraph (a)(ii) above for the purpose of determining a benchmark. We consider that the reference to “not reasonably available” would include situations where input data is not published or otherwise available to a designated benchmark administrator or another person, other than the benchmark contributor, using reasonable effort, on reasonable terms or a reasonable cost and the designated benchmark administrator therefore needs to obtain the input data from a benchmark contributor who has access to that data. For example, an interest rate benchmark may be based on a survey by a benchmark administrator of bid-side rates contributed by benchmark contributors that are financial institutions which routinely accept bankers’ acceptances issued by borrowers and are market makers in bankers’ acceptances either directly or through an affiliate. Where a benchmark administrator engages the services of an agent to aggregate input data from multiple sources, we would not consider this input data to be contributed by the data aggregator, as an agent of the benchmark administrator, provided that the input data is collected from one or more reasonably available sources. Input data for regulated-data benchmarks would generally not be considered to be contributed because the nature of this data is that it is reasonably available and not created for the purpose of determining the benchmark. Subsections 1(5) to (8) – Definitions of benchmark, benchmark administrator, benchmark contributor and benchmark user in Appendix A Subsection 1(5) of the Regulation indicates that, for purposes of the Regulation, the definitions in Appendix A apply. Appendix A contains definitions of “benchmark”, “benchmark administrator”, “benchmark contributor” and “benchmark user”. However,

• Subsection 1(6) indicates that subsection 1(5) does not apply in Alberta, New
  Brunswick, Nova Scotia, Ontario or Saskatchewan. In these jurisdictions, the terms in
  Appendix A are defined in securities legislation.
• Subsection 1(7) provides that, in British Columbia, the definitions of
  “benchmark” and “benchmark contributor” in the Securities Act (R.S.B.C. 1996, c. 418) apply.
• Subsection 1(8) provides that, in Québec, the definitions of “benchmark” and
  “benchmark administrator” in the Securities Act apply.
  The definition of benchmark refers to a “price, estimate, rate, index or value”. We consider that “index” would include any indicator that is:
• made available to the public, and
• regularly determined
• entirely or partially by the application of a formula or any other
  method of calculation, and
• on the basis of the measurement of one or more assets, interests or
  elements, including, but not limited to, the value or price of the asset, interest or element.

Public authorities
Where public authorities (for example, national statistics agencies, universities or research centres) contribute data to, or provide or have control over the provision of, a benchmark for public policy purposes, we would generally not designate such a benchmark as a “designated benchmark” or its administrator as a “designed benchmark administrator”. In this regard, we would generally consider a “public authority” to include a government, a government agency or an entity performing public functions, having public responsibilities or providing public services under the control of a government or a government agency. Use of “reasonable person” Certain provisions of the Regulation use the concept of a “reasonable person” to introduce an objective test, rather than a subjective test. In these provisions, the test will turn on what a “reasonable person” would believe, consider, conclude or determine or what the opinion of a “reasonable person” would be, in the circumstances.
PART 2
DELIVERY REQUIREMENTS
Section 2 – References to Canadian GAAP, Canadian GAAS, Handbook, IFRS and
International Standards on Auditing
There are references in section 2 of the Regulation to “Canadian GAAP”, “Canadian GAAS”, “Handbook”, “IFRS” and “International Standards on Auditing”, which are defined in Regulation 14-101 respecting Definitions. Subparagraph 2(7)(a)(ii) – Canadian GAAP applicable to private enterprises Subject to certain conditions, subparagraph 2(7)(a)(ii) of the Regulation permits audited annual financial statements of a designated benchmark administrator to be prepared using Canadian GAAP applicable to private enterprises, which is Canadian accounting standards for private enterprise in Part II of the Handbook. Subsection 2(8) – Information on designated benchmark administrator Subsection 2(8) requires that certain information be provided on Form 25-102F1 Designated Benchmark Administrator Annual Form and delivered on or before the 30th day after the designated benchmark administrator is designated. A benchmark administrator that provided a completed Form 25-102F1 with their application for designation does not need to re-file the form within the 30 day period after designation. Subsection 3(2) – Information on designated benchmark Subsection 3(2) requires that certain information be provided on Form 25-102F2 Designated Benchmark Annual Form and delivered on or before the 30th day after the designated benchmark is designated. A benchmark administrator that provided a completed Form 25-102F2 with their application for designation does not need to re-file the form within the 30day period after designation. Subsection 4(2) – Submission to jurisdiction and appointment of agent for service of process Subsection 4(2) requires that certain information be provided on Form 25-102F3 Submission to Jurisdiction and Appointment of Agent for Service of Process and delivered on or before the 30th day after the designated benchmark administrator is designated. A benchmark administrator that provided a completed Form 25-102F3 with their application for designation does not need to re-file the form after designation.

PART 3
GOVERNANCE
Board of directors
The Regulation has various obligations for the board of directors of a designated benchmark administrator. The Regulation does not include requirements as to the composition of the board of directors as this will be generally dictated by the corporate laws under which the benchmark administrator is organized. In addition to independence requirements under applicable corporate or other laws with respect to the composition of the board of directors of the benchmark administrator, there are several provisions of the Regulation that foster independence in the oversight of a designated benchmark and the proper management of potential conflicts of interest, including:

• subsection 6(6) – a designated benchmark administrator must not provide a
  payment or other financial incentive to a compliance officer referred to in subsection 6(1), or any DBA individual that reports directly to the officer, if the payment or other financial incentive would create a conflict of interest. Such a payment would compromise the independence of the compliance officer or the DBA individual;
• subsections 7(2) and (3) – a designated benchmark administrator must
  establish an oversight committee, the members of which must not be members of the board of directors;
• subsections 7(4) and (9) – the oversight committee must provide a copy of its
  recommendations on benchmark oversight to the board of directors of the designated benchmark administrator and, if the oversight committee becomes aware that the board of directors has acted or intends to act contrary to any recommendations or decisions of the oversight committee, the oversight committee must record that fact in the minutes of its next meeting;
• subsection 10(1) – a designated benchmark administrator must establish,
  document, maintain and apply policies and procedures that are reasonably designed to, among other things, ensure that any expert judgment exercised by the benchmark administrator or DBA individuals is independently and honestly exercised and protect the integrity and independence of the provision of a designated benchmark;
• subsection 12(2) – a benchmark administrator must conduct the investigation
  of a complaint independently of persons who might have been involved in the subject matter of the complaint; and
• subsections 31(1) and 35(1) – for a designated critical benchmark and a
  designated interest rate benchmark, respectively, at least half of the members of the oversight committee of the designated benchmark administrator must be independent of the designated benchmark administrator and any affiliated entity of the designated benchmark administrator. Subsection 6(1) – Reference to securities legislation relating to benchmarks Subsection 6(1) of the Regulation refers to “securities legislation relating to benchmarks”, which would include the Regulation and benchmark provisions in local securities legislation. “Securities legislation” is defined in Regulation 14-101 respecting Definitions. Paragraph 6(4)(b) – Determining compensation for DBA individuals Paragraph 6(4)(b) of the Regulation prohibits the compliance officer of a designated benchmark administrator from participating in the determination of compensation for any DBA individuals, other than for a DBA individual who reports directly to the compliance officer. We expect that a designated benchmark administrator will consider compliance, including past compliance issues and how compensation policies may be used to manage

conflicts of interest, when establishing compensation policies and determining compensation of any DBA individuals and we do not consider this to be prohibited by paragraph 6(4)(b) of the Regulation, even if the compliance officer is providing input in relation to a DBA individual. Subsection 7(3) – Oversight committee must not include members of board of directors While subsection 7(3) of the Regulation prohibits the oversight committee from including individuals that are members of the board of directors of the designated benchmark administrator, we do not consider this provision to prohibit a member of the board of directors from being invited, when appropriate, to an oversight committee meeting, provided that the member of the board of directors does not perform or influence the independent performance of the roles of the oversight committee set out in section 7 of the Regulation. Subsection 7(7) – Information relating to a designated benchmark We consider that the reference to “information relating to a designated benchmark” in subsection 7(7) of the Regulation would include a daily or periodic determination under the methodology of a designated benchmark and any other information. Subsection 7(8) – Required actions for oversight committee of a designated benchmark administrator Subsection 7(8) of the Regulation requires the oversight committee of a designated benchmark administrator to carry out certain actions. We expect that the oversight committee will carry out these actions in a manner that reasonably reflects the specific nature of the designated benchmark, including the complexity, use and vulnerability of the designated benchmark. Paragraph 7(8)(e) – Calculation agents and dissemination agents Paragraph 7(8)(e) of the Regulation requires the oversight committee of a designated benchmark administrator to oversee any service provider involved in the provision of the designated benchmark, including calculation agents or dissemination agents. We consider that

• a “dissemination agent” is a person with delegated responsibility for
  disseminating a designated benchmark to benchmark users in accordance with the instructions provided by the designated benchmark administrator for the designated benchmark, including any review, adjustment and modification to the dissemination process, and
• a “calculation agent” is a person with delegated responsibility for determining
  a designated benchmark through the application of a formula or other method of calculating the information or expressions of opinions provided for that purpose, in accordance with the methodology set out by the designated benchmark administrator for the designated benchmark. A dissemination agent would not include:
• a publisher that pays a licensing fee to publish a benchmark under a non￾exclusive publishing license, or
• a publisher that pays a licensing fee to publish a benchmark under an exclusive
  publishing license if the benchmark administrator also makes the benchmark publicly available through other means. We understand that a designated benchmark administrator may establish lines of supervision of service providers as contemplated by section 13 of the Regulation, where supervision is performed by certain DBA individuals and the oversight committee receives

and reviews reports on this supervision. We would consider an oversight committee to satisfy its obligations under paragraph 7(8)(e) of the Regulation if it oversees the supervision of the service providers referred to in the paragraph, for example, through the receipt and review of regular reporting from those responsible for the supervision contemplated by section 13 of the Regulation. Subparagraph 7(8)(i)(ii) – Monitoring of input data Subparagraph 7(8)(i)(ii) of the Regulation requires the oversight committee of a designated benchmark administrator to monitor the input data, the contribution of input data by the benchmark contributor, and the actions of the designated benchmark administrator in challenging or validating contributions of input data. We understand that a designated benchmark may have several lines of monitoring where real-time monitoring is performed by certain DBA individuals and the oversight committee receives and reviews reports on this monitoring. We would consider an oversight committee to satisfy its obligations under subparagraph 7(8)(i)(ii) of the Regulation if it oversees the monitoring of items in the subparagraph, for example, through the receipt and review of regular reporting from those responsible for real-time monitoring. Subparagraph 7(8)(i)(iii) – Significant breaches of code of conduct for a benchmark contributor We consider that the reference in subparagraph 7(8)(i)(iii) of the Regulation to a “breach” of a code of conduct that is “significant” would include non-trivial breaches that could affect the designated benchmark, as determined, or the integrity or reputation of the designated benchmark or the designated benchmark administrator.
Section 8 – Control framework
Section 8 of the Regulation requires a designated benchmark administrator to
establish a control framework to ensure that a designated benchmark is provided in accordance with the Regulation. Similarly, except in Québec, subsection 24(2) of the Regulation requires a benchmark contributor to a designated benchmark to establish controls reasonably designed to ensure the accuracy, reliability and completeness of each contribution of input data to the designated benchmark administrator, including controls that the input data is provided in accordance with the Regulation. We expect that the control framework provided for under subsection 8(2) of the Regulation and the controls provided for under subsection 24(2) of the Regulation will be proportionate to all of the following:

• the level of conflicts of interest identified in relation to the designated
  benchmark, the designated benchmark administrator or the benchmark contributor,
• the extent of expert judgment in the provision of the designated benchmark,
• the nature of the input data for the designated benchmark.
  In establishing the control framework required under subsection 8(2) of the Regulation, we would expect a designated benchmark administrator to consider what controls have been established by benchmark contributors under subsection 24(2) of the Regulation. The control framework and the controls used should be consistent with guidance published by a body or group that has developed the guidance through a process that includes the broad distribution of the proposed guidance for public comment. Examples of suitable guidance that a designated benchmark administrator or a benchmark contributor could follow include:

(a) the Risk Management and Governance: Guidance on Control (COCO Framework) published by the Chartered Professional Accountants of Canada; (b) the Internal Control – Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO); and (c) the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published by U.K. Financial Reporting Council. These examples of suitable guidance include, in the definition or interpretation of “internal control”, controls for compliance with applicable laws and regulations. Subsection 8(5) – Reporting of significant security incident or systems issue Subsection 8(5) of the Regulation provides that a designated benchmark administrator must promptly provide written notice to the regulator, except in Québec, or securities regulatory authority describing any security incident or any systems issue relating to a designated benchmark it administers, if a reasonable person would consider that the security incident or systems issue is significant. We consider a failure, malfunction, delay or other incident or issue to be a “significant security incident” or a “significant systems issue” if the designated benchmark administrator would, in the normal course of operations, escalate the matter to or inform senior management ultimately accountable for technology. Subsection 10(2) – Conflict of interest requirements for designated benchmark administrators Subsection 10(2) of the Regulation provides that a designated benchmark administrator must establish, document, maintain and apply policies and procedures that are reasonably designed to keep separate, operationally, the business of the designated benchmark administrator relating to a designated benchmark, and its benchmark individuals, from any other business activity of the designated benchmark administrator if the designated benchmark administrator becomes aware of a conflict of interest or a potential conflict of interest involving the business of the designated benchmark administrator relating to any designated benchmark. We expect that, when contemplating the nature and scope of such a conflict of interest, a designated benchmark administrator would consider a variety of matters, including the following:

• the provision of benchmarks often involves discretion in the determination of
  benchmarks and is inherently subject to certain types of conflicts of interest, which implies the existence of various opportunities and incentives to manipulate benchmarks, and
• in order to ensure the integrity of designated benchmarks, designated
  benchmark administrators should implement adequate governance arrangements to control such conflicts of interest and to safeguard confidence in the integrity of benchmarks. For example, if the designated benchmark administrator does identify such a conflict of interest, the administrator should ensure that persons responsible for the administration of the designated benchmark:
• are located in a secure area apart from persons that carry out other business
  activity, and
• report to a person that reports to an executive officer that does not have
  responsibility relating to other business activities.

Subsection 11(1) – Reporting of contraventions Subsection 11(1) of the Regulation provides that a designated benchmark administrator must establish, document, maintain and apply systems and controls reasonably designed to detect and promptly report to the regulator, except in Québec, or securities regulatory authority any conduct by a DBA individual or a benchmark contributor that might involve:

• manipulation or attempted manipulation of a designated benchmark, or
• provision or attempted provision of false or misleading information in respect
  of a designated benchmark.
  As part of that reporting to the regulator or securities regulatory authority, we expect that the benchmark administrator’s systems and controls would enable the designated benchmark administrator to provide all relevant information to the regulator or securities regulatory authority. Paragraph 12(2)(c) – Complaint procedures Paragraph 12(2)(c) of the Regulation provides that a designated benchmark administrator must communicate the outcome of the investigation of a complaint to the complainant within a reasonable period. We expect that, in establishing the policies and procedures for complaints relating to the designated benchmark required by subsection 12(1) of the Regulation, the designated benchmark administrator would include a target timetable for investigating complaints. A designated benchmark administrator may, on a case-by-case basis, apply for exemptive relief from paragraph 12(2)(c) of the Regulation if such a communication to the complainant would be seriously prejudicial to the interests of the designated benchmark administrator or would violate confidentiality provisions.
  Section 13 – Outsourcing
  Section 13 of the Regulation sets out requirements on outsourcing by a designated
  benchmark administrator. For purposes of securities legislation, a designated benchmark administrator remains responsible for compliance with the Regulation despite any outsourcing arrangement.
  Section 13 does not apply to the oversight committees contemplated by the
  Regulation.
  Paragraph 13(2)(c) – Written agreement for outsourcing Paragraph 13(2)(c) of the Regulation provides that the policies and procedures of a designated benchmark administrator in relation to outsourcing must be reasonably designed to ensure that the designated benchmark administrator and the service provider enter into a written agreement that covers the matters set out in subparagraphs 13(2)(c)(i) to (vi). We consider the reference to “written agreement” to include one or more written agreements. Where a benchmark administrator of a designated regulated-data benchmark uses the services of an agent to facilitate delivery of aggregate input data from multiple sources, we would not consider this to be outsourcing a function, service or activity in the provision of the designated benchmark. While such an arrangement would not be subject to section 13 of the Regulation, the benchmark administrator would still be required to comply with other applicable provisions of the Regulation, including the accountability framework in section 5 and the control framework in section 8, so it should have appropriate agreements in place with the agent.

PART 4
INPUT DATA AND METHODOLOGY
Subsection 15(2) – Significant breaches of code of conduct for a benchmark contributor We consider that the reference in subsection 15(2) of the Regulation to a “breach” of a code of conduct that is “significant” would include non-trivial breaches that could affect the designated benchmark, as determined, or the integrity or reputation of the designated benchmark or the designated benchmark administrator. Subsection 15(3) – Requirement to obtain alternative representative data Subsection 15(3) of the Regulation provides that, in the event of a breach referred to in subsection 15(2), if a reasonable person would consider it to be appropriate, a designated benchmark administrator must obtain alternative representative data in accordance with the guidelines referred to in subsection 16(3) of the Regulation. However, those guidelines may contemplate the circumstances in which the designated benchmark administrator may conclude that the other benchmark contributors from which it obtained input data are a sufficient representative sample of benchmark contributors for purposes of subsection 15(1) of the Regulation. Subsection 15(4) – Verification of input data from front office of a benchmark contributor Paragraph 15(4)(a) of the Regulation requires that, if input data is contributed from any front office of a benchmark contributor, or an affiliated entity that performs any activities that relate to or might affect the input data, the designated benchmark administrator must obtain information from other sources, if reasonably available, that confirms the accuracy and completeness of the input data in accordance with the benchmark administrator’s policies and procedures. There may be instances where there are no other sources of information reasonably available to the designated benchmark administrator to confirm the accuracy and completeness of the input data. We expect the designated benchmark administrator to consider the steps it would take to confirm the accuracy and completeness of such input data in such instances when establishing the policies, procedures and controls required under
section 8 of the Regulation.
Subsection 15(5) – Front office of a benchmark contributor Subsection 15(5) of the Regulation provides that “front office” of a benchmark contributor or an applicable affiliated entity means any department, division, group, or personnel that performs any pricing, trading, sales, marketing, advertising, solicitation, structuring, or brokerage activities. In general, we consider front office staff to be the individuals who generate revenue for the benchmark contributor or the affiliated entity. Paragraph 16(1)(e) – Capability to verify determination under the methodology Paragraph 16(1)(e) of the Regulation provides that a determination under the methodology of a designated benchmark must be capable of being verified as being accurate, reliable and complete. A determination under a methodology that is based on information such as input data would be verified as being accurate, reliable and complete if:

• it can be clearly linked to the original information, and
• it can be linked to complementary, but separate information.

For example, in the case of an interest rate benchmark that is determined daily and calculated as the arithmetic average of bid-side rates contributed by financial institutions that routinely accept bankers’ acceptances and are market-makers in bankers’ acceptances, the daily determination would be verified as being accurate, reliable and complete if:

• the calculation can be clearly linked to the rates contributed by the financial
  institutions and recorded by the benchmark administrator, and
• the benchmark administrator’s record of the rates contributed by the financial
  institutions can be matched to the records of those rates maintained by the applicable financial institutions. In the case of an interest rate benchmark, we recognize that any verification done by a designated benchmark administrator or a public accountant would require access to the records of benchmark contributors pursuant to subsection 39(8) of the Regulation and may only be feasible if based on samples of rates on certain dates. Paragraph 16(2)(a) – Applicable characteristics to be considered for the methodology Paragraph 16(2)(a) of the Regulation provides that a designated benchmark administrator must take into account, in the preparation of the methodology of a designated benchmark, all of the applicable characteristics of that part of the market or economy the designated benchmark is intended to represent. In this context, we consider that “applicable characteristics” include:
• the size and reasonably expected liquidity of the market,
• the transparency of trading and the positions of participants in the market,
• market concentration,
• market dynamics, and
• the adequacy of any sample to reasonably represent that part of the market or
  economy the designated benchmark is intended to represent.
  Subsection 17(2) – Proposed or implemented significant changes to methodology Subsection 17(2) of the Regulation provides that a designated benchmark administrator must provide for public notice of and comment on a proposed or implemented significant change to the methodology of a designated benchmark. As part of the methodology disclosure required under section 18, paragraph 18(1)(e) of the Regulation provides that a designated benchmark administrator must publish examples of the types of changes that may constitute a significant change to the methodology of the designated benchmark. In general, we would consider a change to the methodology of a designated benchmark to be significant if, in the opinion of a reasonable person, it would have a significant effect on the provision of the designated benchmark (within the meaning of subsection 1(4) of the Regulation). We consider publication on the designated benchmark administrator’s website of a proposed or implemented change to the methodology of a designated benchmark, accompanied by a news release advising of the publication of the proposed or implemented change, as sufficient notification in these contexts. We consider it good practice for a designated benchmark administrator to establish a voluntary subscription-based email distribution list for those parties who wish to receive notice of such a publication by email.

In addition to, or as an alternative to, a news release, a designated benchmark administrator may want to consider other ways of helping to ensure that stakeholders and members of the public are aware of the publication of the proposed or implemented change to the methodology of a designated benchmark on the designated benchmark administrator’s website, such as postings on social media or internet platforms, media advisories, newsletters, or other forms of communication. Subparagraph 18(1)(b)(v) – Methodology disclosure As part of the methodology disclosure required under section 18, subparagraph 18(1)(b)(v) of the Regulation provides that a designated benchmark administrator must publish a complete explanation of all elements of the methodology, including the benchmark contributors and the criteria used to determine eligibility of a benchmark contributor. This disclosure would include a list of existing benchmark contributors and may include a description of persons who may be benchmark contributors in the future. Compliance with methodology Several requirements in the Regulation foster a designated benchmark administrator’s compliance with its own benchmark methodology, including:

• paragraph 5(1)(b) – a designated benchmark administrator must establish,
  document, maintain and apply an accountability framework of policies and procedures that are reasonably designed to, for each designated benchmark it administers, ensure and evidence that it follows the methodology applicable to the designated benchmark;
• paragraph 6(3)(b) – at least once every 12 months, the compliance officer
  must submit a report to the designated benchmark administrator’s board of directors that describes whether the designated administrator has followed the methodology applicable to each designated benchmark it administers;
• paragraph 8(4)(a) – a designated benchmark administrator must establish,
  document, maintain and apply policies, procedures and controls that are reasonably designed to ensure that benchmark contributors comply with the standards for input data in the methodology of the designated benchmark;
• paragraph 16(1)(c) – the accuracy and reliability of a methodology, with
  respect to determinations made under it, must be capable of being verified, including, if appropriate, by back-testing; and
• paragraph 18(1)(c) – a designated benchmark administrator must publish the
  process for the internal review and approval of the methodology and the frequency of such reviews and approvals. When complying with these requirements, a designated benchmark administrator should generally attempt to ensure that compliance with a benchmark methodology is monitored by staff that are independent of staff that determine and apply the methodology.
  PART 5
  DISCLOSURE
  Subsection 19(1) – Benchmark statement
  The elements of the benchmark statement, set out in paragraphs 19(1)(a) through (m) of the Regulation, are designed to provide transparency to benchmark users to understand the purpose or intention of the benchmark, the limitations of the benchmark, and how the designated benchmark administrator will apply the methodology to provide the benchmark. In preparing the benchmark statement, a designated benchmark administrator should attempt to ensure that benchmark users have sufficient information to understand what the benchmark

is intended to represent and to make a decision on whether to use, or continue to use, the benchmark. Paragraph 19(1)(a) – Applicable part of the market or economy for purposes of the benchmark statement Paragraph 19(1)(a) of the Regulation provides that a required element of the benchmark statement for a designated benchmark is a description of that part of the market or economy the designated benchmark is intended to represent. This relates to the benchmark’s purpose. For example, an interest rate benchmark may be intended to represent the cost of unsecured interbank lending and may be intended to be used as a benchmark interest rate in interbank loan agreements. In this example, we consider it problematic if

• the type of prime bank lending rate the benchmark is intended to record is
  unclear, or
• the calculation method does not work well in periods of low liquidity.
  Subsection 20(2) – Significant change to designated benchmark Subsection 20(2) of the Regulation provides that a designated benchmark administrator must publish the procedures it will follow in the event of a significant change to or the cessation of a designated benchmark it administers, including procedures for advance notice of the implementation of a significant change or a cessation. We would consider a change in the person acting as the benchmark administrator of a designated benchmark to be an example of a significant change. Consequently, we would expect the designated benchmark administrator’s procedures to include procedures in the event of a change in the administrator of a designated benchmark it administers, including procedures for advance notice of the change in administrator.
  PART 6
  BENCHMARK CONTRIBUTORS
  General
  Part 6 of the Regulation contains provisions that apply in respect of benchmark
  contributors to a designated benchmark. There are also specific requirements that apply to:
• benchmark contributors to a designated critical benchmark (see sections 30
  and 33 of the Regulation), and
• benchmark contributors to a designated interest rate benchmark (see sections
  37, 38 and 39 of the Regulation).
  Securities legislation defines “benchmark contributor” as a person that engages or participates in the provision of information for use by a benchmark administrator for the purpose of determining a benchmark. This definition includes a person that provides information in respect of a designated benchmark, whether voluntarily, by way of contract or otherwise. In Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario and Saskatchewan, securities legislation provides that the securities regulatory authority may, in response to an application by the regulator or, in Alberta or British Columbia, on its own initiative, require a person to provide information to a designated benchmark administrator in relation to a designated benchmark if it is in the public interest to do so. For example, a person may be required to provide information to a designated benchmark administrator for the purpose of determining a designated critical benchmark. In such a case, the person would be a benchmark contributor, and would therefore be subject to the provisions of the

Regulation applicable to benchmark contributors generally and the provisions applicable to benchmark contributors to a designated critical benchmark. However, certain of those provisions only apply if input data is considered to have been contributed within the meaning of subsection 1(3) of the Regulation. Certain provisions in the Regulation relating to benchmark contributors have not been adopted in Québec as amendments to the Securities Act are required to adopt these provisions. Subsection 23(1) – Code of conduct for benchmark contributors The requirement in subsection 23(1) of the Regulation for a designated benchmark administrator to establish, document, maintain and apply a code of conduct that specifies the responsibilities of benchmark contributors with respect to the contribution of input data for the designated benchmark only applies if a designated benchmark is determined using input data from benchmark contributors. Subsection 1(3) of the Regulation sets out when input data is considered to have been contributed and Part 1 of this Policy Statement provides further guidance on subsection 1(3) of the Regulation and when input data is considered to have been contributed. Subparagraph 23(2)(f)(v) – Validation of input data before contribution In considering any requirement for procedures, systems and controls under subparagraph 23(2)(f)(v), we expect a designated benchmark administrator to consider the specific nature of the designated benchmark, including the complexity, use and vulnerability of the designated benchmark and what systems and controls would ensure the accuracy and completeness of input data. For example, depending on the specific nature of the designated benchmark, it may be appropriate to require an individual with appropriate knowledge holding a position senior to that of the contributing individual to sign-off on input data before it is contributed to the designated benchmark administrator. Subparagraph 23(2)(f)(vii) – Input data that is inaccurate, unreliable or incomplete Subparagraph 23(2)(f)(vii) of the Regulation requires that a code of conduct for a benchmark contributor include a reporting requirement for any instance when a reasonable person would consider that a contributing individual, acting on behalf of the benchmark contributor or any other benchmark contributor, has contributed input data that is inaccurate, unreliable or incomplete. In establishing these requirements, we expect the designated benchmark administrator to consider providing indicators that could be used to identify input data that is inaccurate, unreliable or incomplete, based on past experience. The indicators should reasonably reflect the specific nature of the designated benchmark, including the complexity, use and vulnerability of the designated benchmark. Subparagraph 23(2)(f)(x) – Access to board of directors Subparagraph 23(2)(f)(x) of the Regulation requires that a code of conduct for a benchmark contributor include a requirement
that the benchmark contributor’s designated officer referred to in subparagraph 23(2)(f)(ix) and the benchmark contributor’s chief compliance officer not be prevented or restricted from directly accessing the benchmark contributor’s board of directors. In some instances, the designated officer under subparagraph 23(2)(f)(ix) and the chief compliance officer will be the same person. However, if they are different persons, each must be provided with direct access to the benchmark contributor’s board of directors. However, we realize that there may be situations where the designated officer under subparagraph 23(2)(f)(ix) and the chief compliance officer may jointly or separately report to the benchmark contributor’s board of directors on a matter. Subsection 23(3) – Assessment of compliance with code of conduct In establishing the policies and procedures required under subsection 23(3) of the Regulation, we expect the designated benchmark administrator to consider the specific nature of the designated benchmark, including the complexity, use and vulnerability of the

designated benchmark. For example, the policies and procedures may include the use of verification certificates signed by an officer of the benchmark contributor and on-site inspections by internal compliance staff that are independent from the business unit whose activities are subject to the code of conduct. Paragraph 24(1)(a) – Conflict of interest requirements for benchmark contributors Except in Québec, paragraph 24(1)(a) of the Regulation provides that a benchmark contributor to a designated benchmark must establish, document, maintain and apply policies and procedures reasonably designed to ensure input data contributed by the benchmark contributor is not affected by any conflict of interest or potential conflict of interest involving the benchmark contributor and its employees, officers, directors or agents, if a reasonable person would consider that the input data might be inaccurate, unreliable or incomplete. We expect that, when establishing these policies and procedures, a benchmark contributor would consider the following:

• benchmark contributors of input data to benchmarks can often exercise
  discretion and are potentially subject to conflicts of interest, and so risk being a source of manipulation, and
• consequently, conflicts of interest must be managed or mitigated to ensure
  they do not affect input data.
  For example, if the benchmark contributor does identify such a conflict of interest involving other business activity, the contributor should ensure that persons responsible for the contribution of input data to a designated benchmark administrator for the purpose of determining a designated benchmark:
• are located in a secure area apart from persons that carry out the other business
  activity, and
• report to a person that reports to an executive officer that does not have
  responsibility relating to the other business activity.
  Subsection 24(2) – Accuracy, reliability and completeness of input data In establishing the policies, procedures and controls required under subsection 24(2) of the Regulation, subject to any requirements set out in the code of conduct established under section 23 of the Regulation, we expect a benchmark contributor to consider the specific nature of the designated benchmark, including the complexity, use and vulnerability of the designated benchmark and what systems and controls would ensure the accuracy, reliability and completeness of input data. For example, depending on the specific nature of the designated benchmark, it may be appropriate to require an individual with appropriate knowledge holding a position senior to that of the contributing individual to sign-off on input data before it is contributed to the designated benchmark administrator. In addition, as contemplated by subparagraph 24(2)(d)(i) of the Regulation, the extent of organizational separation of contributing individuals from employees whose responsibilities include transacting in a contract, derivative, instrument or security that uses the designated benchmark for reference should be appropriate to avoid the conflicts of interest or mitigate the risks resulting from conflicts of interest. Depending on the specific nature of the designated benchmark and the related conflicts of interest and risks, this may involve restricting access to certain information or restricting access to certain areas of the organization. Subsection 24(3) – Exercise of expert judgment In establishing the policies and procedures required under paragraph 24(3)(a), we expect a benchmark contributor to consider the specific nature of the designated benchmark,

including the complexity, use and vulnerability of the designated benchmark and the nature of its input data. As described in Part 1 of this Policy Statement, expert judgment may involve various activities. Except in Québec, paragraph 24(3)(b) of the Regulation requires that, if expert judgment is exercised in relation to input data, the benchmark contributor must retain records that record the rationale for any decision made to exercise that expert judgment, the rationale applied in the exercise of the expert judgment and the manner of the exercise of the expert judgment. The records should take into consideration the benchmark contributor’s policies and procedures for the exercise of expert judgment. Subsection 24(4) – Record keeping by benchmark contributor The reference to “communications” in paragraph 24(4)(a) of the Regulation includes telephone conversations, email and other electronic communications. We consider this to require a benchmark contributor to a designated benchmark to keep audio recordings of all phone conversations and voicemail messages in relation to the contribution of input data. Furthermore, a benchmark contributor to a designated benchmark should retain records of call logs and notes of phone conversations or voicemail messages in relation to the contribution of input data. The records kept by a benchmark contributor under subsection 24(4) of the Regulation may be required to be made available to the designated benchmark administrator under subsection 24(5). Given that the records may contain confidential, sensitive or proprietary information, we expect that a designated benchmark administrator will only request such records in connection with the review and supervision of the provision of the designated benchmark and will take appropriate steps to ensure the confidential treatment of such information.
Section 25 – Compliance officer for benchmark contributors
Except in Québec, subsection 25(1) of the Regulation provides that a benchmark contributor that contributes input data for a designated benchmark must designate an officer to be responsible for monitoring and assessing compliance by the benchmark contributor and its employees with the code of conduct referred to in section 23, the Regulation and securities legislation relating to benchmarks. The officer can conduct these activities on a part-time basis but should be independent from persons involved in determining or contributing input data. Except in Québec, subsection 25(2) of the Regulation requires a benchmark contributor to not prevent or restrict the designated officer referred to in subsection 25(1) and the benchmark contributor’s chief compliance officer from directly accessing to the benchmark contributor’s board of directors. In some instances, the designated officer under subparagraph 25(1) and the chief compliance officer will be the same person. However, if they are different persons, each must be provided with direct access to the benchmark contributor’s board of directors. However, we realize that there may be situations where the designated officer under subparagraph 25(1) and the chief compliance officer may jointly or separately report to the benchmark contributor’s board of directors on a matter.
PART 7
RECORD KEEPING
Section 26 – Record keeping by designated benchmark administrator
The reference to “communications” in paragraph 26(2)(h) of the Regulation includes telephone conversations, email and other electronic communications. We consider this to require a designated benchmark administrator to keep audio recordings of all phone conversations and voicemail messages with benchmark contributors in relation to the contribution of input data. Furthermore, a designated benchmark administrator should retain

records of call logs and notes of phone conversations or voicemail messages with benchmark contributors in relation to the contribution of input data. In addition to the record keeping requirements in the Regulation, securities legislation generally requires market participants to keep such books, records and other documents as may reasonably be required to demonstrate compliance with securities law of the jurisdiction.
PART 8
DIVISION 1 Designated critical benchmarks
Section 30 – Ceasing to contribute input data to a designated critical benchmark
Except in Québec, section 30 of the Regulation provides the process for a benchmark contributor to cease to contribute input data to a designated critical benchmark. After the benchmark contributor has provided notice to the designated benchmark administrator that it will cease to contribute input data, subsection 30(2) of the Regulation requires the benchmark contributor to continue contributing input data for a period not exceeding 6 months. This is to provide a transition to protect the accuracy and integrity of the designated critical benchmark. Subparagraph 30(3)(b)(ii) of the Regulation permits the designated benchmark administrator to notify the benchmark contributor that it must continue contributing input data for a period of less than 6 months. We expect that a designated benchmark administrator will determine the date of expiry of this period by considering the assessment, submitted to the regulator, except in Québec, or securities regulatory authority under subparagraph 30(3)(b)(i) of the Regulation, of the impact of the benchmark contributor ceasing to contribute input data on the capability of the designated critical benchmark to accurately and reliably represent that part of the market or economy the designated benchmark is intended to represent. We also expect that the period for which a benchmark contributor must continue contributing input data will be as short as practical while ensuring that the designated benchmark still accurately represents that part of the market or economy the designated benchmark is intended to represent. Securities legislation in certain jurisdictions also provides the securities regulatory authority with the ability to require a benchmark contributor to provide information to a designated benchmark administrator in relation to a designated benchmark if it would be in the public interest or not prejudicial to the public interest to do so. DIVISION 2 Designated interest rate benchmarks
Section 34 – Order of priority of input data
Section 34 of the Regulation requires that, if a designated interest rate benchmark is
based on a contribution of input data from a benchmark contributor, input data for the determination of the designated interest rate benchmark must be used by the designated benchmark administrator in accordance with the order of priority specified in the methodology of the designated interest rate benchmark. We would generally expect that the methodology of such a designated interest rate benchmark would use the following types of input data, as applicable, in the order of priority set out below:
(a) a benchmark contributor’s transaction data in the underlying market that the designated interest rate benchmark intends to represent; (b) if the input data referred to in paragraph (a) is not available, executable quotes in the market described in paragraph (a); (c) the input data referred to in paragraphs (a) and (b) is not available, indicative quotes in the market described in paragraph (a);

(d) if the input data referred to in paragraphs (a), (b) and (c) is not available, a benchmark contributor’s observations of third-party transactions in markets related to the market described in paragraph (a); (e) in any other case, expert judgments. We consider an “executable quote” (also known as a “committed quote”) to be a quote that is actionable for the other party to the potential transaction. The party that provides that quote announces their willingness to enter into transactions at the relevant bid and ask prices and agree that if they do transact, they will do so at the quoted price up to the maximum quantity specified in the quote. We consider “indicative quote” to be a quote that is not immediately actionable by the other party to the potential transaction. Indicative quotes are usually provided before the parties negotiate the price or quantity at which the potential transaction will occur. A designated interest rate benchmark may be based on contributions of input data from benchmark contributors that represent the interest rate at which the benchmark contributor is willing to lend funds to its customers. In the context of section 34 of the Regulation, for the purposes of subsections 14(1) and (3) of the Regulation, input data for a designated interest rate benchmark may be adjusted, if contemplated by the methodology for the designated interest rate benchmark, to more accurately represent that part of the market or economy that the designated interest rate benchmark is intended to represent, including, but not limited to, where:
(a) the time of the transactions that are the basis for the input data is not sufficiently proximate to the time of contribution of the input data; (b) a market event occurs between the time of the transactions and the time of contribution of the input data and the market event might, in the opinion of a reasonable person, have a significant impact on the designated interest rate benchmark; (c) there have been changes in the credit risk of the benchmark contributors and other market participants that might, in the opinion of a reasonable person, have a significant impact on the designated interest rate benchmark. Subsection 36(1) – Assurance report for designated interest rate benchmark Subsection 36(1) of the Regulation provides that a designated benchmark administrator must engage a public accountant to provide, as specified by the oversight committee referred to section 7, a limited assurance report on compliance, or a reasonable assurance report on compliance, regarding the designated benchmark administrator's compliance with certain sections of the Regulation and following of the methodology of each designated interest rate benchmark it administers. We note that the report required by subsection 36(1) is separate and different from the compliance report of the officer of the designated benchmark administrator required by paragraph 6(3)(b) of the Regulation. A designated benchmark administrator for a designated interest rate benchmark must comply with the requirement in paragraph 6(3)(b) and with the requirement in subsection 36(1). Subsection 39(4) – Record keeping by benchmark contributor The reference to “communications” in paragraph 39(4)(d) of the Regulation includes telephone conversations, email and other electronic communications. We consider this to require a benchmark contributor to a designated benchmark to keep audio recordings of all phone conversations and voicemail messages in relation to the contribution of input data. Furthermore, a benchmark contributor to a designated benchmark should retain records of

call logs and notes of phone conversations or voicemail messages in relation to the contribution of input data.