On 7 February 2019, the International Organization of Securities Commissions (IOSCO) published a final report on good or sound practices within commodity storage and delivery infrastructures. The report builds on the findings of IOSCO’s report ‘The Impact of Storage and Delivery Infrastructure on Derivatives Market Pricing’ (Storage Report), which was published in May 2016. The report provides guidance to relevant storage infrastructures (RSI) 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 Storage Report noted that there is a wide range of practices related to the storage of physical commodities and storage infrastructure operations which have the potential, if not addressed, to affect derivatives pricing. These were categorised into five broad areas that have potential for reform: oversight, transparency, conflicts of interest, fees and incentives and operations.
The report sets out good or sound practices for each of the areas to mitigate risks within them, such good or sound categorised as:
- 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.