Benchmark

1. Comparative measure.

A measure stated on a standardised basis, to enable comparison.

For example, an effective annual rate.

2. Standards of performance - quantitative.

A quantified standard of performance set by the market (such as stock market index) or by an institutional investor (such as an internally developed benchmark) against which investment performance, or other performance, can be managed and tracked.

3. Standards of performance - qualitative.

A standard of performance including less readily quantified measures, such as satisfaction.

4. Indices - market prices - interest rates - IOSCO - regulation - Benchmarks Regulation.

An officially published, leading and regulated rate of interest or related measure, from which a rate of interest payable or receivable, or a related amount, is calculated.

For example, SONIA.

A related rate of interest payable might be SONIA + 1%.

Benchmarks and indices defined - UK Financial Conduct Authority (FCA)

"The UK Benchmarks Regulation (BMR) defines an index as a figure that is publicly available and is regularly determined, either by applying a formula or other calculation, or by making an assessment based on the value of one or more underlying assets/prices (including estimated prices, actual or estimated interest rates, quotes and committed quotes, or other values or surveys).

An index becomes a benchmark within the scope of the BMR where:

• it is used to determine the amount payable under a financial instrument or financial contract, or the value of a financial instrument
• it is used to measure the performance of an investment fund for the purpose of:

• tracking the return
• defining the asset allocation or a portfolio, or
• computing the performance fees"

UK Financial Conduct Authority (FCA).

5. Interest rates - indices.

More broadly, any rate of interest, from which another rate of interest payable or receivable is calculated.

6. Market price.

A market price for a widely traded quality and quantity of a commodity, used as a reference price in a contract.

For example, the price per barrel of Brent crude oil, or West Texas Intermediate.

7. Averaged market prices.

An averaged market price, calculated on an appropriate and agreed basis, used for the determination of a contract price and related payments.

Pricing options - share buybacks - benchmarks

"... most UK buybacks incorporate some sort of incentive for the brokers to buy as many shares as possible within the set budget.

This ensures the company pays the lowest possible price for its shares.

At the end of the programme, the broker will calculate the average price per share the company has paid over the life of the programme and compare that to a benchmark price.

The benchmark price is usually the volume-weighted average price (VWAP) per share in the market for the period, sometimes with a discount applied.

[Share buyback] pricing models include:

(1) VWAP guarantee: the company always pays VWAP for the shares. A true-up payment is made at the end of the programme to cover the difference between actual amount paid and the VWAP price...

Share buybacks: what treasurers need to know - Lucy Reeve, corporate partner, Linklaters LLP - The Treasurer - Issue 4 of 2024, p38.

See also

• Alternate Base Rate
• Alternative reference rate (ARR)
• Baseline
• Base rate
• Benchmarking
• Benchmarks Regulation
• Climate benchmark
• Commodity
• Credit Benchmark
• Effective annual rate (EAR)
• €STR
• EURIBOR
• European Money Markets Institute (EMMI)
• Fallback
• Financial Conduct Authority (FCA)
• Financial instrument
• Financial Stability Board (FSB)
• Fixing
• Good practice
• Index
• Interest rate
• Interest rate index
• International Organization of Securities Commissions (IOSCO)
• Investment fund
• Portfolio
• Price fixing
• Principles for Financial Benchmarks (IOSCO)
• Rate fixing
• Reference rate
• Refinitiv Benchmark Services (UK) Limited (RBSL)
• Regulation
• Return
• Risk-free rates (RFR)
• SONIA
• Spread to Treasury / Governments
• Stakeholder
• Sterling
• True-up
• UK Benchmarks Regulation
• Volume-weighted average price (VWAP)
• West Texas Intermediate (WTI)

Other resources

• Principles for Financial Benchmarks - IOSCO

• Working Group of Sterling Risk-Free Reference Rates - latest announcements & publications

• A Practical Guide to LIBOR transition - Slaughter & May - Association of Corporate Treasurers

• SONIA and other benchmarks

• ARRC: Second Report

• Interest rate benchmark reform in Australia - Reserve Bank of Australia (RBA)