FIA has filed a response to a consultation report on principles for the regulation of commodity derivatives from the Board of International Organization of Securities Commissions (IOSCO). The report, published in November 2021, aimed to reflect changes and developments in commodities derivatives markets since the publication of the existing IOSCO Principles for the Regulation and Supervision of Commodity Derivatives in 2011.
FIA’s response supports IOSCO’s intention to revise and update the principles to ensure that commodity derivatives markets continue to facilitate price discovery and hedging while remaining free from manipulation and abusive practices. In particular, FIA makes the following recommendations:
- The principles should only apply, at this time, to derivatives on a physical commodity or a non-financial deliverable with a finite supply. Further study is needed to determine whether the principles should be applied to derivatives on carbon credits and other intangible commodities.
- Principle 2 should ensure the trading dynamics of commodity derivative dealers are acknowledged and observed across regulatory capital regimes.
- Principle 16 should clarify that governmental market authorities should intervene to address disruptions in commodity derivatives markets only as absolutely necessary after it becomes clear the market operator or self-regulatory organization will not be able to implement measures to restore proper functioning of the market. In addition to clarifying the sequence of appropriate intervention by governmental authorities, we recommend that IOSCO clarifies, where relevant, which principles apply to each category of market authority (e.g., governmental regulator, self-regulatory organization, or operator of the regulated market).
Additionally, we note that Principle 6 of the consultation report specifically references the Principles for Oil Price Reporting Agencies, Final Report of the IOSCO Board, which was released in October 2012, and ask whether it may be appropriate to reevaluate these principles since they were developed specifically for oil markets, and other physical commodities may have different characteristics (including how pricing data is shared, aggregated, and reported) that may warrant additional consideration.
Read a copy of the full response.
