Brussels, 08/12/2015 (Agence Europe) - On Monday 7 December, the price reporting agencies (PRA) spoke out against some of the aspects of the technical discussions aiming to finalise the regulation to reinforce the governance of benchmarks.
Following the inter-institutional agreement reached in late November, a number of technical points remained open on this proposed regulation, for instance on issues to do with the treatment of commodity benchmarks (see EUROPE 11439).
Readers may recall that theoretically, these indexes should be subject to a tailor-made Annexe which reflects the principles applicable to the price reporting agencies (PRA principles), established by the International Organisation of Securities Commissions (IOSCO). Concerned that precious metals, such as gold, will end up falling under the rules applicable to commodity benchmarks, the European legislator decided to make a number of changes to the text. Article 14a on commodity benchmarks, as per its final version, states that the provisions of the Annexe will not apply to indexes based on submissions from contributors, most of which are supervised financial entities (…). In practice, this would mean that the PRAs would not be able to operate in line with the Annexe, but in accordance with the provisions laid down for the financial benchmarks.
On behalf of the price reporting agency ICIS Market Information, Richard Street told EUROPE that the Council and the Parliament had been “in very great haste to finalise the Benchmark Regulation during the Luxembourg Presidency of the Council of the EU”. “The rush has appeared to have left several aspects of the Regulation in confusion, including aspects relating to the commodity benchmarks, including the highly important energy and other benchmarks that are relied on by European manufacturers”, he added.
Robert Gough, director of content for the Oil Price Information Service (OPIS), raised the same concerns. “Several aspects of the text are confusing and seemingly not aligned with the PRA principles established by the IOSCO”, he said. These principles have been in place for three years.
“This unexpected divergence from international best practice has potentially negative implications for the use of commodity benchmarks in Europe, including those produced outside the EU. During coming weeks we will be exploring ways to overcome these problems for the European commodity markets and we hope that solutions will be found”, Street explained. “It would be a real shame if the EU unintentionally undermines the hard work of the last three years by diverging from international best practice”, he concluded. “We'll need to analyse these inconsistencies and find ways to ensure they don't damage market transparency”, Gough explained.
The agency Argus declined to comment at this stage. At the time of going to press, the IOSCO had not responded to our request for comment.
The price reporting agencies tried to have their say during the negotiations, in particular during the technical discussions which followed the political agreement in trialogue. The EP was inclined to listen to the agencies' arguments, but the Council is reported to have refused to change the text.
In response to concerns expressed by the EP about precious metals, however, the final version of the text states that if a commodity benchmark is a critical index and its underlying asset is gold, silver or platinum, the provisions laid down for the financial indexes will apply, rather than the Annexe. The EP is reported to be less than entirely satisfied with this result, but failed to get any more out of the Council. The permanent representatives of the member states to the EU are to approve the agreement in trialogue on Wednesday 9 December. (Original version in French by Elodie Lamer)