Oil market pricing escapes linkage to financial benchmark regulations
LONDON, September 10, 2014
The oil market's price setting agencies have avoided being linked to the kind of regulation trained on financial benchmarks, in a report by international regulators.
The decision by the International Organization of Securities Commissions (Iosco) comes as the European Union is investigating allegations of oil price manipulation, which has involved searching the offices of major oil companies and pricing agencies.
In its report, Iosco said it had no plan to further align guidelines for oil price reporting agencies (PRAs) with those for financial market benchmarks. The PRAs had made good progress in implementing its Principles for Oil Price Reporting Agencies, which it published two years ago, it said.
Iosco's initiative followed a request in 2011 from the Group of 20 (G20) top economies, under pressure to curb speculation blamed for huge swings in the oil market, to look at the role of price reporting agencies.
This parallels increased scrutiny by regulators across Europe, the US and Asia of financial benchmarking processes following the Libor manipulation case in 2012.
"Iosco does not believe that further alignment of PRA Principles with those for Financial Benchmarks Principles is justified," said the report from Iosco, whose membership regulates more than 95 per cent of the world's securities markets.
"Good progress was made during the first year of implementation," it said of the PRA principles.
The leading oil pricing agencies are Platts, a unit of McGraw-Hill, ICIS, part of Reed Elsevier and privately-held Argus Media. They produce price assessments based on deals, bids and offers in opaque physical markets.
Platts welcomed the report and Argus, in a statement, approved of the report's "firm rejection of any need to merge the PRA Principles with Iosco's more general Principles for Financial Benchmarks."
"The PRA Principles were specifically developed for oil and other physical commodity markets, which are highly distinct from financial markets," Argus Media chairman and chief executive Adrian Binks said.
The PRA principles cover a number of areas including internal quality control, conflict of interest policies and complaints processes. Industry sources said at the time they largely reinforced PRAs' existing practice.
When it launched the code, Iosco said it would review the implementation and warned it would consider other options "such as recommending direct governmental regulation of PRAs" if the agencies did not police themselves.
Iosco also said in the new report that in meetings with stakeholders to discuss the impact of the principles, some had noted reduced participation by investment banks in commodity markets.
The report said Iosco would look further into a concern of PRAs that, given greater regulatory scrutiny, companies could be less willing to give them pricing data, undermining the process.
Iosco will submit the report to the G20 at its summit in November and said it will report back on the PRAs' implementation efforts in 2015.
Thomson Reuters, parent of Reuters news, competes with Platts, Argus and ICIS in providing news and information to the oil markets. -- Reuters
