* Proposal could be adopted quickly
* Oil traders say no need for tougher regime
* Member states could decide on how tough penalty should be
By Barbara Lewis
BRUSSELS, July 26 Manipulating international
commodity benchmarks such as Brent crude oil would be a
criminal offence, punishable by jail, under a set of reforms the
EU Commission has proposed in response to the rigging of a major
interest reference rate.
The Commission, the EU's executive arm, announced on
Wednesday plans to tighten supervision of financial benchmarks
after a scandal involving interbank lending rate Libor, used to
set prices for trillions of dollars of financial products.
The benchmarks the Commission wants to make more "reliable,
transparent and credible" also include commodities such as gold,
cocoa, and Brent crude.
It would become an offence to transmit false or misleading
information, provide "false or misleading inputs, or any action
which manipulated the calculation of a benchmark", if the
European Parliament and 27 EU member states endorse the
Although not cited specifically, that could include false
reporting to oil price reporting agencies like Platts, the
leading assessor of benchmark prices for physical Brent and
other cash oil markets.
The proposals could be agreed quickly, possibly by the end
of the year, as amendments to existing proposals on regulating
Under the draft proposals, traders on over-the-counter
physical markets and the price assessment agencies -- who
collect information on physical trades that help to set
benchmark values -- stand to come under greater scrutiny.
Individual EU member states would still be allowed to decide
what penalties to set for offences, but it would no longer be
possible for them to take a soft stance.
Sanctions have to be "effective, proportionate and
dissuasive", the Commission said.
For years, national regulators have turned a blind eye to
trading practices, especially in over-the-counter deals, that
have pushed up or pulled down reference prices such as Brent.
The benchmark is used for pricing more than two-thirds of the
world's crude oil.
"By imposing criminal sanctions for serious market abuse
throughout the EU we send a clear message to deter potential
offenders -- if you commit insider dealing or market
manipulation you face jail and a criminal record," the EU
commissioner for the internal market, Michel Barnier, said.
"These proposals will heighten market integrity, promote
investor confidence and level the playing field in the internal
Traders have long argued there is no need for increased
regulation of commodity dealing, which they say are rooted in
the physical realities of supply and demand, in contrast to
major financial markets.
"Physical oil trading is a complex issue," said a senior oil
market source, who would only comment on condition of anonymity.
"We don't want to have to justify every transaction to a
regulator who doesn't understand the nuance of the business."
Another senior oil executive drew a contrast between the oil
trade and Libor.
"We're dealing with a liquid, real material. People do not
get together to decide the price every day," he said. "And the
price-reporting agencies quote a representative, fair value of
what has been done."