The International Organization of Securities Commissions (IOSCO) today 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.
In its final report, Commodity Storage and Delivery Infrastructures: Good or Sound Practices, 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 which underlie derivative contracts that are subject to financial regulation; and
– 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 incentivises the market to adopt best practices and self-correction, rather than one that prohibits certain behaviours.
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.
IOSCO believes that the implementation of these practices will lead to a more transparent and robust environment for the physical storage and delivery of commodities, producing benefits for all commodity market participants.
IOSCO notes the existence of global or regional codes of conduct for certain commodities, as well as specific regulation in some jurisdictions for commodities such as gas and power. IOSCO does not intend the practices to conflict with or duplicate existing codes and encourages market participants to seek to identify and follow best practice where overlaps exists.