On 4 July 2018, the International Organisation of Securities Commissions (IOSCO) published for consultation a report, Commodity Storage and Delivery Infrastructures: Good or Sound Practices (the Report).
The Report follows up on the earlier IOSCO report, The Impact of Storage and Delivery Infrastructure on Derivatives Market Pricing, which was published on 9 May 2016. This report identified certain commodities storage and delivery situations that have the potential to affect derivatives pricing if not properly addressed. These practices fall into five broad areas: oversight, transparency, conflicts of interest, fees and incentives and operations.
The Report provides guidance to relevant storage infrastructures (RSIs) and their relevant oversight bodies (ROB) in the form of good or sound practices to assist those entities to identify and address issues that could affect commodity derivatives’ pricing and in turn affect market integrity and efficiency.
The good or sound practices in the Report can be broken up into three categories:
- preventative practices that seek to establish good governance and dispute resolution procedures in an effort to avoid issues;
- monitoring practices that seek to address issues as they arise in order to mitigate deleterious effects; and
- punitive practices which address, through resolution, behaviours after the fact.
IOSCO believes that the implementation of the 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. The overarching objective of the practices is to create a framework that incentivises the market to adopt best practices and self-correction, rather than one that prohibits certain behaviours.
The deadline for comments on the Report is 29 August 2018.