The International Organization for Securities Commissions (IOSCO) published a revised version of its 2011 Principles for the regulation and supervision of commodity derivatives markets, to provide a resilient framework and ensure market integrity.
The revised Principles aim to assist relevant market authorities in constructing an appropriate regulatory and supervisory approach to ensure proper conduct in commodity derivatives markets and avoid abusive trading practices, particularly manipulation. The revised Principles seek to support the physical commodity derivatives markets in providing their fundamental price discovery and hedging functions, while operating free from manipulation and abusive trading schemes. In light of the changes in the commodity derivatives markets since the publication of the original Principles in 2011, IOSCO has identified examples of recent and evolving developments in commodity derivatives markets that warrant a review of the original Principles. The developments include emergence of additional types of trading venues, use of direct electronic access by end-users, increasing reliance on electronic data, increasing importance of sustainability factors in investment decisions, increasing role of exchange traded products, and potential impact of novel and unexpected disruptions. These recent developments, trends, and events justified an update and revision of the Principles, with a focus on market surveillance, transparency, price discovery, correlation with physical markets, addressing disorderly markets, responding to market abuse, and enforcement powers of trading venues against end-user behaviors.
The revised Principles also aim to address certain market transparency issues that stem from the increasing role of data and data providers in commodity derivatives markets. Furthermore, a new Principle 16 on Unexpected Market Disruptions has been added that provides adequate guidance to mitigate some of the extreme price volatility in the case of extraordinary disruptions such as war, which may include providing alternative delivery points for physically settled commodity derivatives. Finally, the revised Principles call on relevant market authorities to address investor education matters and awareness particularly related to certain risks to retail investor inherent in commodity derivatives trading. IOSCO expects relevant market authorities should review their policies and regulation to ensure that the Principles are put into effect through active surveillance and enforcement measures.
Keywords: International, Banking, Securities, Commodity Derivatives, Reporting, Derivatives, IOSCO
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Previous ArticleEU Authorities Issues Regulatory and Other Updates for Banks
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.