FIA Says IOSCO’s Updated Principles Should Apply Only to Derivatives on Physical Commodities – Lexology

In comments on a proposed update to IOSCO’s 2011 “Principles for the Regulation and Supervision of the Commodity Derivatives Markets,” FIA asserted that IOSCO should clarify that the principles only “apply to exchange traded derivatives on a physical commodity or a non-financial deliverable with a finite supply.”

As previously covered, IOSCO’s Principles are intended to apply to the regulatory supervision of price discovery and hedging in the commodity derivatives markets as to procedures for preventing “manipulation and abusive practices.” IOSCO requested feedback in response to market developments, including (i) regulatory changes, (ii) an increased dependence on electronic trading and data, (iii) technological advancements, (iv) unforeseen disruptions, and (v) multi-market trading abuses.

In its comments, FIA recommended that:

  • IOSCO’s Principles should apply only to “derivatives on a physical commodity or a non-financial deliverable with a finite supply” because more review is needed to determine their applicability to intangible commodities;

  • Principle 2 should be clarified to ensure that the “trading dynamics of commodity derivative dealers” are followed by all regulatory capital regimes; and

  • Principle 16 should be clarified to ensure that government interference in commodity derivatives markets is a measure of last resort to restore proper functioning of the market.

FIA otherwise supported the updated principles, stating that the revisions reflected the “changes, trends and activities in the commodity derivatives market over last decade.”