Currency to Oil Rates Targeted for Tougher Rules After Libor
By Jim Brunsden - Jul 17, 2013 8:36 AM ET
Benchmarks underpinning markets from oil to foreign exchange face tougher oversight under plans by global regulators to prevent any repeat of Libor-style fraud.
Benchmarks should be based as much as possible on real transaction data, rather than estimates, and banks should tackle conflicts of interest, the International Organization of Securities Commissions, a Madrid-based group that harmonizes global market rules, said inguidelines published today.
The measures are “an important step” in restoring the credibility of tarnished benchmarks,” Martin Wheatley, chief executive officer of the U.K. Financial Conduct Authority and a co-head of the Iosco benchmark task force, said in a statement. “These principles set out clear and robust standards.”
Authorities are grappling with a growing number of rate-setting scandals. Global regulators have fined UBS AG (UBSN),Barclays Plc (BARC) and Royal Bank of Scotland Group Plcabout $2.5 billion for distorting the London interbank offered rate, known as Libor, and similar benchmarks. Probes into potential rigging have expanded beyond interbank lending rates to include benchmarks underpinning energy prices, currency trades and derivatives.
Organizations that administrate benchmarks will be required by regulators to “publicly disclose their compliance” with the guidelines within 12 months, Iosco said. The group will carry out a review in 18 months to see how well the measures have been enforced.
Royal Dutch Shell Plc (RDSA), BP Plc (BP/), Statoil ASA (STL) and Platts, the oil-price data collector owned by McGraw Hill Financial Inc. (MHFI), are being investigated by the European Commission on price fixing concerns, while the FCA, which oversees U.K. markets, is looking into potential manipulation in the $4.7 trillion-a-day foreign-exchange market.
Benchmarks used in the $379 trillion swaps market have also come under scrutiny. The U.S. Commodity Futures Trading Commission is probing suspected rigging of the ISDAFix rate used as a reference for derivatives trades. Gary Gensler, chairman of the CFTC, co-led the Iosco task force with Wheatley.
Under the Iosco guidelines, firms involved in benchmark-setting will have to increase oversight of their employees who set the rates, and sign up to a code of conduct.
Organizations in charge of administrating rates should be responsible for verifying the accuracy of the data they receive from banks and other market participants, and ensuring it is based on data from actual trades as much as possible, Iosco said.
Iosco, which brings together markets and securities regulators from over 100 countries, said that the guidelines should be applied to a broad range of benchmarks, ranging from interbank rates to benchmarks underlying energy, equity and commodities markets. Exceptions include benchmarks established by public authorities, such as consumer price indexes, and reference prices set by clearinghouses.
The Iosco standards are one of several steps being taken by international regulators to restore confidence in benchmarks.
Financial Stability Board Chairman Mark Carney, the governor of the Bank of England, said last month that global regulators will set up a task force with banks in a bid to repair or replace tarnished benchmarks in the wake of the rate-rigging scandals.
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