Oil-Price Assessors Say Post-Libor Rules to Harm Market
Energy price-reporting companies including Platts said rules proposed by global regulators to safeguard against manipulation of financial benchmarks would make markets less transparent.
Oil traders will stop submitting their transactions to firms that establish benchmark energy prices if those deals are burdened by additional regulation, Platts, a unit of McGraw Hill Financial Inc., said in a response to proposals from the International Organization of Securities Commissions, or Iosco, on setting rules for global benchmarks.
“Platts believes that an overly prescriptive imposition of external oversight and other regulatory requirements on data submitters runs the risk of unintended consequence -- the primary one being a retreat from participation in price formation,” Platts said in a letter released by Iosco yesterday.
The comments come as European Competition Commissioner Joaquin Almunia, Europe’s top antitrust official, is investigating possible collusion to manipulate benchmark energy assessments. Last month, investigators searched the offices of Royal Dutch Shell Plc (RDSA), Statoil ASA (STL), BP Plc and Platts, and requested records from some of Europe’s biggest trading houses, including Vitol Group, Gunvor Group Ltd. and Glencore Xstrata Plc. (GLEN) Platts publishes the Dated Brent benchmark that helps determine the price of more than half the world’s oil.
Pricing mechanisms are under scrutiny around the world after U.S and U.K. investigators uncovered widespread attempts by banks to manipulate the London interbank offered rate, or Libor, the benchmark lending rate tied to $300 trillion in securities worldwide. Royal Bank of Scotland Group Plc, UBS AG and Barclays Plc (BARC) have been fined $2.5 billion and at least a dozen firms remain under investigation. Regulators are also looking for evidence of price fixing in ISDAfix, the benchmark rate for the $379 trillion swaps market.
“The investigations and enforcement actions raised concerns over the fragility of certain benchmarks,” Iosco said in an April report outlining potential guidelines for the industry.
The organization said last month that regulators should increase oversight and eliminate conflicts of interest in setting benchmark lending rates. The proposal may clash with rules the group developed last year to govern conduct at price-reporting companies, said Platts, Argus Media Ltd. and Reed Business Information’s ICIS in letters to Iosco published yesterday.
Several of the principles in the proposed rules for financial benchmarks “are inappropriate to the environments in which we operate, as well in certain cases potentially actually harmful to commodity markets,” said Richard Street, head of regulation and compliance for ICIS, in a letter.
Iosco said last year that oil price assessments could be vulnerable to manipulation because traders could selectively submit transactions that are used to determine a benchmark, leaving out those that might hurt their bets in related contracts. The organization sought the industry’s feedback on establishing principles for price reporters, including the imposition of regulatory oversight and a requirement that traders report every deal.
Platts and Argus objected, saying such constraints would prompt companies to stop reporting trades, making the market more opaque. Iosco didn’t include the provision in its “Principles for Oil Price Reporting Agencies,” which was published in October.
Iosco’s report last month resurrects that requirement, said Simon Smith, head of government and regulatory affairs for Argus, in a letter.
“Argus Media is concerned that certain of the draft Principles for Financial Benchmarks are inconsistent with and seek to reintroduce provisions that were considered and ultimately rejected,” he said.
To contact the editor responsible for this story: Dan Stets at firstname.lastname@example.org.