G20 watchdog to study oil pricing agencies
London, April 27, 2011
Global securities watchdog IOSCO will study transparency and governance at oil pricing services such as Platts and Argus as part of broader G20 efforts to limit speculation in commodities markets.
The International Organisation of Securities Commissions, which oversees most national securities agencies, said it would present its findings to the finance ministers of the world's G20 leading industrialised nations in October.
"The report intends to inform the G20 on the influence and impact that price reporting agencies have on price discovery for various types of crude oil and in particular how this feeds into financial markets, since many price reporting agency benchmarks are used in exchange settlement prices," IOSCO said.
It said the report was being compiled together with the International Energy Agency, the International Energy Forum and the Organisation of Petroleum Exporting Countries.
Rising prices on energy and agricultural markets in recent months have sparked sharp criticism from politicians in the West, who say financial speculators are to blame for the spikes.
Platts, which is part of US group McGraw-Hill, has long been the dominant force in oil price reporting, a role that has been increasingly challenged by competitor Argus Media over the past decade.
Both Platts and Argus Media said they were aware of the plans for the study.
"We share IOSCO's interest in transparent and efficient commodity markets, and we look forward to working with the task force as it continues its review," Platts said, adding that its Market-on-Close price assessment process already requires full disclosure of the details of any bid, offer or transaction.
Argus also said it welcomed the G20 study. "The study is confirmation of the important role that the price reporting agencies play in bringing transparency to the oil markets, enabling trade to be conducted between industry participants on a more equal basis to the ultimate benefit of consumers," said Argus chairman and CEO Adrian Binks.
The two services assess prices for over-the-counter physical crude and refined products markets around the globe, many of which are used to price spot and long-term oil sales contracts.
There has long been less regulatory oversight of those physical markets than of energy futures markets such as Brent and US light crude, which are traded on regulated exchanges.
The IOSCO said its report would look at how price assessments by the agencies affect the transparency and functioning of oil markets. It said the report would investigate how the physical price assessment process works and include a description and critique of the main methodologies.
It will also assess the degree of data transparency, analyse the rules and procedures governing the assessments and scrutinise "governance and conflict of interest management at price reporters".
It will assess the impact of price reporting agency benchmarks on financial markets. "The report will include an assessment of how proposed regulatory reform in the United States, Europe and other territories may impact the operations of price reporting agencies," it added. - Reuters