The International Organization of Securities Commissions (IOSCO) has published a report on the Impact of Storage and Delivery Infrastructure on Commodity Derivatives Market Pricing. The report sets out the findings and conclusions of the review of the impact of storage infrastructures on the integrity of the price formation process of physically-derived commodity derivatives contracts traded on regulated exchanges.
The report concludes that IOSCO’s Principles for the Regulation and Supervision of Commodity Derivatives Markets, published in September 2011, provide an adequate framework for implementing effective oversight, governance and operational controls of storage infrastructure and do not require additional principles or revision of the existing principles.
However, the report identified certain practices surrounding storage infrastructure that have the potential to affect derivatives pricing and affect efficient market operation. Some practices also may hinder financial regulators and exchanges from identifying emerging problems and could potentially cause market disruption, affect market efficiency and impair the price convergence process.
Accordingly, the report recommends that IOSCO conduct further work to develop guidance in the form of good or sound practices with respect to the operation and oversight of storage infrastructures. This guidance should also address the concerns identified by the IOSCO review.