The Australian Financial Markets Association's move earlier this year to change the way it calculates the bank bill swap rate means it is well placed to comply with new international standards for market benchmarks.The International Organisation of Securities Commissions has released the final version of its "Principles for Financial Benchmarks", which calls for the data used to construct a benchmark to be based on observable transactions in an active market.AFMA has moved from setting BBSW rates by submission to a process of extracting rates from markets. As a result, it no longer has to deal with the conflicts that arise when submitters are market participants.IOSCO has been engaged in a consultation process since last year, working to establish principles for benchmarks used in financial markets. Its review comes in the wake of the Libor rigging scandal.IOSCO's main concern is that submission processes for setting benchmarks may create vulnerabilities to the determination process if not addressed by appropriate controls. For example, there may be conflicts of interest, as well as incentives to manipulate the determination process, where the submitters are also market participants. IOSCO's new principles say that the data used to construct a benchmark should be based on prices, rates, indices or values that have been formed by the competitive forces of supply and demand (that is, in an active market) and anchored by observable transactions entered into at arm's length by buyers and sellers.AFMA's executive director, David Lynch, said he was confident that the approach adopted by the association in relation to BBSW rates was consistent with IOSCO's principles.IOSCO has made one important clarification since the release of a consultation paper earlier this year. It says the principle does not mean that every individual benchmark determination must be constructed solely from transaction data. Provided that an active market exists, a variety of observable data, such as bids and offers, can be used to determine a benchmark.Documentation should have sufficient detail to allow stake-holders to understand how the benchmark is derived and to assess its relevance.Benchmark administrators must have a complaints process and independent auditing.