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EU ministers approve final commodity price benchmark rules

Highlights

EU ministers Tuesday approved the final text of EU rules that will govern all benchmarks used to price financial instruments, including commodity price benchmarks, on behalf of the EU Council.

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The rules will apply to commodity price benchmarks produced by price reporting agencies such as S&P Global Platts.

This was the last formal approval needed, after the European Parliament approved on April 28 a text already agreed informally with the council and the European Commission.

The next step is for the text to be translated into all the EU's official languages and published in the EU's Official Journal, becoming binding a day later.

Article Continues below...

The rules only start to apply, however, 18 months after that, according to the text published Tuesday by the council.

The rules include a separate regime for commodity benchmarks based on the International Organization of Securities Commissions' non-binding 2012 principles for oil price reporting agencies.

S&P Global Platts already complies with these IOSCO principles.

The rules will require the EC to track how international principles for commodity price reporting agencies evolve, and report on this every five years from when the rules apply.

The EC could present legislative proposals with this report.

The text published by the parliament on April 28 had implied there would be four-yearly reports from when the rules become binding.

THRESHOLDS FOR COMMODITY BENCHMARKS

The rules do not apply to commodity benchmarks which meet all of the following criteria:

- most of the contributors are not supervized financial entities, trade repositories or benchmark administrators;

- the related financial instruments are only traded on one trading venue;

- the total notional value of these financial instruments does not exceed Eur100 million ($113 million).

Commodity benchmarks that are captured by the new rules face a lighter touch regime for that for pure financial benchmarks.

This regime includes requiring commodity benchmark administrators to make public any methodology used to calculate a benchmark.

They must also give priority to concluded and reported transactions before bids, offers and other information, or explain why if not.

Benchmark administrators will also have to appoint an independent, external auditor to carry out annual checks, and to publish the results.

The EC proposed the rules to govern all benchmarks used to price financial instruments in September 2013, in response to the Euribor and Libor interest rate scandals.

--Siobhan Hall, siobhan.hall@spglobal.com

--Edited by James Leech, james.leech@spglobal.com