Lack of regulatory clarity hampering PRA code of conduct

Price reporting agencies expect to release updated industry code of conduct shortly, but warn regulatory uncertainty could delay their efforts

IPRO code requires clear rules, say agencies

Price reporting agencies (PRAs) say they are close to releasing another version of an industry code of conduct designed to deflect criticism of their price assessments. However, they warn global efforts to crack down on the regulation of benchmark indexes might further delay the finalisation of the long-awaited document.

In April 2012, New York-based Platts, London-based Argus Media and London-based Icis published an 11-page draft for a voluntary, industry-led code of conduct, while soliciting feedback from market participants and other interested parties. Known as the Independent Price Reporting Organisations’ (IPRO) code, the document came amid a consultation by the Madrid-based International Organization of Securities Commissions (Iosco) that investigated whether PRAs were properly reporting spot oil prices. In October last year, that consultation concluded that PRAs did not require "precipitous regulation" and endorsed a self-regulatory regime for the agencies.

Since then, PRAs say they have been busy incorporating aspects of Iosco’s report into the IPRO code. And while the project has suffered slight delays, the release of another version of the code is “imminent”, according to Richard Street, London-based head of regulation and compliance at Icis. "It's been difficult because there's three of us discussing the code and we were supposed to have a meeting two weeks ago to finalise the last few details, but unfortunately we didn't have that meeting,” he says. "But we're in the process of re-planning it, so it's imminent and that's my current expectation."

Elsewhere, a New York-based spokeswoman for Platts confirms the agency also expects the code to be released shortly. "[Platts] expect to release the IPRO code in the near future. We've been working with Argus and Icis to finalise the code, a process which has included reflecting input received from Iosco and others,” she says, in an emailed statement to Energy Risk. Argus Media declined to comment on the matter.

Following the outbreak of claims major banks attempted to rig Libor rates, regulators have been making a concerted effort to ensure other benchmark indexes are free from potential manipulation. Last November, the European Commission (EC) closed a consultation on the regulation of benchmark indexes that elicited a strong response from PRAs against greater oversight. The EC intends to follow this with legislative proposals at some point during the second quarter of this year. Separately, Iosco began a consultation on financial benchmarks in January, publishing the responses it received on March 11. On the basis of this feedback and further public comment, the organisation says it hopes to draw up a framework of “robust” and “globally-consistent” principles in April.

If Iosco significantly changes the goalposts... then clearly the PRAs will have to change the approach

If there are further delays to the release of the IPRO code, Street at Icis says these are likely to come as a result of uncertainty over the two processes – both of which could have ramifications for PRAs.

"The political environment is quite movable at the moment," he notes. "We've been asking for some certainty from Iosco and the EC. Making sure these processes are consistent would help us a lot. What we don't want to do is invest lots of time and money to do things one way, only to discover that they go in another direction."

To some extent, these calls are being heard by Iosco, which published a response to frequently asked questions on March 15 to clarify uncertainties raised by its January consultation. While Street says the document has helped the agencies, he warns further delays might emerge if regulators call for sweeping changes to the way PRAs operate.

"If Iosco significantly changes the goalposts, in terms of how it thinks the benchmarking regime should work in the commodities market, then clearly the PRAs will have to change the approach. We want to make sure the best practice applies to the existing market and market structure, so if those structures change, the PRAs will have to make sure best practice reflects the change," he says.

From the agencies’ point of view, the most important consideration is that the standards adopted for PRAs are consistent across jurisdictions, he adds. "If you have the EC saying do one thing, Iosco saying do another thing, and individual national regulators saying do different things again, then we'd have three or four diverse rules that we're supposed to be operating [under]. As many of the commodity markets are global markets, it clearly doesn't work unless you have a global solution."