Global financial supervisors are reviewing whether benchmark price-setters for the oil market are meeting international standards amid a European Union probe into potential manipulation of the $3.4 trillion-a-year crude market.
The International Organization of Securities Commissions is checking if the industry has met standards designed to counter the threat of market abuse, said the group’s Secretary General David Wright. Madrid-based Iosco drew up the rules last year, saying they were needed to wipe out “vulnerabilities” that leave the door open for market abuse.
“Iosco has worked intensively on looking at oil price reporting,” Wright said in an interview in Brussels today. “We are in a process of reviewing the implementation of these principles, to what degree they’ve been implemented, and to what degree they have been effective.”
Royal Dutch Shell Plc (RDSA), BP Plc (BP/), Statoil ASA (STL) and Platts, the oil-price data collector owned by McGraw Hill Financial Inc., said they’re being investigated after the European Commission conducted raids in three countries. Price fixing in energy markets has the potential to inflate consumer prices for everything from gasoline to airline tickets to cosmetics.
Iosco in October asked companies involved in setting price levels used in the oil market to adopt robust controls and to protect the reliability of the benchmarks by introducing conflict-of-interest policies, providing audit trails to regulators and establishing a formal complaints process.
The group said that it would work with other international organizations to monitor how well the standards are applied in the 18 months after they were published.
The U.K.’s Office of Fair Trading said that it had received “no credible evidence” of possible manipulation of oil spot and futures markets in response to an appeal it made for information.
“The OFT is currently assisting the commission with its inspections in the U.K.,” the OFT said in an e-mailed statement.
Aside from its work on oil price reporting, Iosco has also been asked by the Group of 20 nations to draw up general principles for benchmark setting in response to the scandal engulfing the London interbank offered rate, or Libor, and other rates.
“We think it’s important to have overriding principles on this, covering the whole range of benchmarks and indices,” Wright said.
“We’ve got to identify alternative benchmarks, with appropriate governance and determine the optimal transition paths,” he said. The Financial Stability Board, which brings together G-20 finance ministry officials, regulators and central bankers “is certainly going to be looking at this issue.”
Iosco is aiming to adopt the benchmark principles at a meeting of its board on June 18-19, Wright said.
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