Oil price reporting escapes regulation

LONDON Tue Sep 25, 2012 12:09am IST

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LONDON (Reuters) - Global financial regulators have backed away from a proposal to regulate oil price reporting media, recommending a set of guidelines that largely reinforce their existing practice in assessing prices of the world's biggest traded commodity.

The conclusion was detailed in a draft final report of the International Organisation of Securities Commissions (IOSCO), Principles for Oil Price Reporting Agencies, seen by Reuters on Monday.

Under pressure to curb speculation blamed for huge swings in the market, the Group of 20 (G20) top economies last year asked IOSCO to look at the role of price reporting agencies (PRAs).

The lead agencies are Platts, owned by McGraw-Hill MHP.N, ICIS, a unit of Reed Elsevier (REL.L) and privately-held Argus Media.

A consultation paper in March floated the idea of setting up independent oil market regulators for physical oil markets. But the draft report said heavy regulation could prove counterproductive.

"Because data are submitted on a voluntary basis, precipitous regulation of PRAs or requirements that oil market participants who submit data to PRAs submit all of their transaction data potentially could result in some oil market participants to decrease or even cease their submission of data to PRAs," the draft report said.

An IOSCO spokesperson said the draft report would be discussed at an IOSCO board meeting next week and, if approved, it would be published in early October, ahead of the G20's gathering in November.

The report listed a number of principles for PRAs to follow, which included requiring the agencies to submit formal methodolgy for their price assessments, develop measures designed to minimize selective reporting by market players, give priority to concluded transactions and keep a five-year paper trail of how prices are worked out.

IOSCO said it would review the extent of the implementation over an 18-month period and warned that it would consider other options "such as recommending direct governmental regulation of PRAs" if the agencies did not police themselves.

Argus and Platts had no immediate comment on the draft report. An industry source, familiar with the principles thrashed out at an August meeting in Washington, said they amounted to a dilution of IOSCO's more punitive suggestions.

"In essence, they have climbed down rather a long way," the source, who declined to be identified, said. "Nearly everything they recommend is already common practice among PRAs."

Journalists at reporting agencies assess oil prices by calling up as many traders as possible and contacting them via instant messaging to ask where they see the market, trying to avoid pitfalls such as reflecting only a buyer's or seller's view.

The process has evolved over time and Platts and Argus publish their methodologies detailing how they assess prices.

IOSCO's draft did not make judgments about specific methodologies, but said "selective reporting" by industry players could create "an opportunity for manipulating the commodity market data" submitted to PRAs.

Members of Madrid-based IOSCO regulate more than 95 percent of the world's securities markets in more than 100 countries, including the U.S. Securities and Exchange Commission, Britain's Financial Services Authority and Japan's Financial Services Agency.

Thomson Reuters (TRI.TO), parent of Reuters news, competes with Platts, Argus and ICIS in providing news and information to the oil markets.

(Editing by William Hardy)

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