IOSCO published a report that sets out good or sound practices to assist relevant storage infrastructures and their oversight bodies to identify and address issues that could influence the pricing of commodity derivatives and in turn affect market integrity and efficiency. The practices are of relevance to commodity derivatives traded on regulated trading venues, although certain practices may also be applied to commodities that underlie over-the-counter (OTC) contracts.
IOSCO identifies a number of issues that may apply to storage infrastructures and sets forth a range of possible actions to mitigate them. The practices are intended to benefit the activities of market participants regarding:
- physical commodities, which are the tangible or cash market goods that underlie derivative contracts subject to financial regulation
- commodity derivatives, which are financial instruments whose price is derived from the underlying physical or cash market commodities
The overarching objective of the good or sound practices is to create a framework that motivates the market to adopt best practices and focus on self-correction, rather than to create a framework that prohibits certain behaviors. IOSCO advocates the adoption of these good or sound practices by all relevant storage infrastructures, their oversight bodies, and financial regulators in IOSCO member jurisdictions, as appropriate to their role and activities. The good or sound practices in this report can be broken up into three categories: preventative practices that seek to establish good governance and dispute resolution procedures; monitoring practices that seek to address issues as they arise to mitigate deleterious effects; punitive practices that address, through resolution, behaviors after the fact.
Keywords: International, Securities, PMI, Commodity Derivatives, Storage Infrastructure, Trading Venues, OTS Derivatives, IOSCO
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