In respect of a range of indices created and maintained by UBS, UBS is a benchmark administrator, as defined in "Principles for Financial Benchmarks" published by the International Organization of Securities Commissions ("IOSCO") on 17 July 2013 (the "IOSCO Principles"). This Compliance Statement sets out the extent of UBS’s compliance with the IOSCO Principles.
For a number of years UBS has applied a policy in respect of the creation and maintenance of indices. As an integral part of that policy, UBS set up the UBS Index Group ("UIG") whose responsibilities include: (a) applying a consistent framework for the creation, calculation, maintenance and publication of indices; (b) providing calculation services where indices are calculated by UBS; (c) managing outsource providers of primary and secondary level Index calculation services; and (d) supporting the licensing of certain UBS Indices to third parties.
The responsibility for benchmark administration within UBS, and specifically in relation to UBS’s Indices that are developed and maintained via its Investment Bank, is undertaken by the UIG, which is part of Compliance & Operational Risk Control within UBS Group Risk Control. This organisational set-up of the UIG helps mitigate any material conflicts of interest which may otherwise arise between UBS and the clients of its trading businesses in relation to UBS Indices. In addition, the Global Asset Management division of UBS creates, maintains and manages certain types of products as described further below.
Definition of Indices
An index or indices (each an "Index" and, together, the "Indices") is defined for UBS's purposes in line with the definition of "Benchmark" used in the IOSCO Principles.
Application to existing Indices
The UBS administered Indices that are compliant with the IOSCO Principles can be found using the link below, and shall be updated on a regular basis:
Since the publication of the IOSCO Principles, the following index remediation work has been undertaken by UBS:
- identification of Indices and maintenance of an up-to-date inventory of Indices;
- development and implementation of an updated UBS index creation and maintenance policy;
- development and implementation of an enhanced control framework for the administration of UBS Indices, taking into consideration the following factors: (a) the level of administration carried out by UBS; (b) the source of the underlying data inputs; (c) the risks posed by the Indices and the index-setting process; and/or (d) the threat of material conflict of interest;
- development and implementation of a submitter code of conduct;
- rationalisation of existing Indices by means of divestment, transfer of administration functions, retirement and / or improvements to the disclosure information. For example:
- UBS sold the UBS Australian Bond Indices in April 2014 and resigned as a Benchmark Administrator in early July 2014
- In respect of the indices currently known as Bloomberg Commodity Indices (BCOM) and formerly known as the "Dow Jones UBS Commodity Indices", all index administration duties were transferred to Bloomberg with effect from 1 July 2014
- The UBS Convertible Indices were sold, and all index administration duties transferred, to Thomson Reuters with effect from 30 June 2014
- In respect of the CMCI Index family all index administration duties were transferred to Bloomberg with effect from 1 August 2015. The Bloomberg website for the CMCI indices is http://www.bloombergindexes.com/ubs-bloomberg-cmci-index-family/. For marketing purposes UBS Investment Bank ("UBS IB") maintains its website for the CMCI indices: www.ubs.com/cmci.
- In respect of certain commodities indices other than the CMCI indices mentioned above all index administration duties were transferred to Bloomberg. The announcement can be seen on https://www.ubs.com/global/en/index-group/documents.html, on the file named "Custom Commodity Indices Administrator Change.pdf". UBS IB maintains its website for marketing purposes at https://www.ubs.com/global/en/investment-bank/bloomberg-cmci/commodity-strategies.html
- All index administration duties in respect of certain other indices are in the process of being transferred to Markit Equities Limited. This will happen in different tranches, with the first indices transferred to Markit Equities Limited with effect from 8th February 2016. Details on the indices which have been transferred to Markit Equities Limited can be found on https://www.ubs.com/global/en/index-group/documents.html on the file called "Change of Index Administrator". The Markit Equities Limited website for these indices is http://www.markit.com/product/ubsindices;
Application to new Indices
Each new Index created will be documented using index manual templates and be governed by the control framework which, in each case, is designed to be compliant with the IOSCO Principles.
Extent of Compliance with the IOSCO Principles
Subject to the below, UBS (in its capacity as Benchmark Administrator) has implemented the IOSCO Principles in relation to the UBS Indices.
In addition to its wider Index business, UBS either has entered or enters into the following types of products or arrangements with UBS clients:
- Basket Linked Products
Basket Linked Products are defined as follows:
- a financial contract or instrument under which the amount to be paid by UBS (either in its capacity as counterparty to the contract or issuer of the financial instrument) is linked to a value (the “Basket Value”) which is determined by reference to the performance of two or more underlying assets, variables or financial instruments (each, a “Basket Component” and together, the “Basket”);
- the Basket Components, the methodology for calculating the Basket Value and all other provisions governing the establishment and operation of the Basket are embedded in, and form an integral part of, the terms and conditions of the particular Basket Linked Product (such that the Basket and Basket Value has no existence outside the terms and conditions of the relevant Basket Linked Product); and
- UBS as calculation agent under the Basket Linked Products calculates and provides the Basket Value only to the investor(s) in the Basket Linked Product for the purpose only of determining any payment obligations under the Basket Linked Product.
The IOSCO Principles recognise that they should be applied in a proportionate way and accordingly, given the nature of Basket Linked Products as set out above (and in particular, that the Basket and Basket Valuation have no existence outside the terms and conditions of the relevant Basked Linked Product), Basket Linked Products will not be subject to the current remediation exercise. Basket Linked Products shall continue to be subject to separate proportionate governance, control and administration processes within UBS.
- UBS Hedge Funds Solutions (HFS) Indices
UBS HFS Indices are produced and administered by UBS Alternative and Quantitative, LLC ("HFS"), which is part of UBS's Global Asset Management division, and are structured to give investors exposure to fund of hedge funds returns via structured products linked to those UBS HFS Indices.
- Blended performance measures and customised solutions referencing third party Indices
At the request of and for UBS's Asset Management division, UBS's GBAC Team (which is part of UBS's Asset Management division) either (i) calculates and makes available to users the composite performance of a blend or combination of two or more existing third party sponsored and administered benchmarks or indices or (ii) delegates to a third party index provider (in the vast majority of cases) the construction, calculation and maintenance of a new index based on an existing index of that third party index provider.
The products described in (1), (2) and (3) above are not part of UBS's IOSCO Principles compliance exercise, as covered by this Compliance Statement. Instead, these products are being reviewed and considered as part of a separate exercise to ensure that any additional controls, processes and procedures are implemented, where required.
- Indices in the process of being withdrawn
UBS provides certain Indices that are in the process of being withdrawn where no new products will be created after the date of this Compliance Statement. UBS will still apply its enhanced control framework to these Indices, however, disclosure documentation will not be updated.
- Index/Indices owned or sponsored by a third party
For certain Indices UBS may be regarded as a Benchmark Administrator but the relevant Index/Indices are owned or sponsored by a third party. In such cases UBS will apply its internal control framework for the administration of Indices; however, the disclosure documentation will not be amended until consent to the changes is obtained by UBS from the relevant Index owner or sponsor.
In view of the evolving scope of the IOSCO Principles, further products may be identified which are deemed to be within the scope of the IOSCO Principles and which are not covered by this Compliance Statement.
UBS also provides certain research indices, which are intended to be used for information purposes only and where UBS is neither aware of there being any products linked to such research indices nor aware of them being used by a third party for the purposes specified in limb (c) of the IOSCO definition of “Benchmark” (collectively “Research Indices”).
As Research Indices fall outside the IOSCO definition of a Benchmark they are not covered by this Compliance Statement.
Index Oversight Committee
Conflicts of interest may arise in UBS due to the other activities of UBS and its affiliates (including acting as issuer of, or counterparty to, products linked to UBS Indices). The UBS Index Oversight Committee (the “IOC”) and other equivalent index committees within UBS that exist or may be set up from time to time to provide governance oversight in respect of certain UBS Indices do not generally include representatives of external stakeholders. UBS has appointed individuals who are members of its control functions to act as members of the IOC.
Please refer to the www.ubs.com/indexgroup for further details of:
- UBS Indices Governance structure;
- A summary describing the main features of UBS Indices Control Framework;
- Index manuals of UBS Indices;
- Code of Conduct for submitters;
- Guidelines regarding the hierarchy of data inputs and the exercise of expert judgment; and
- Notifications of material changes in the index determination methodology.