Apparently the European Union has begun to soften it’s earlier stance on regulation of commodity benchmarks. The EU is at odds with common sense trying to bring a “one size fits all” approach to very different businesses. After the embarrassing LIBOR scandals the thought was that the same type of shenanigans could affect other benchmarks such as North Sea Brent Crude. The LIBOR rigging caused problems for anyone that was trying to acquire a mortgage or other credit facility. In other words, just about everyone everywhere.
Commodity trading is more of a business to business pursuit. Relative to the millions of individuals that have mortgages and a couple of credit cards in their pocket, there are a small number of players in commodities, albeit transacting huge volumes. Commodity markets are also among the most efficient on the planet and with so few players, it seems that it would be difficult to get one over on the others, and if one player could, certainly not for very long.
So, we regulate the market participants? No. Interestingly the proposed regulation targets the information flow to the publishers of benchmarks. Requirements include information sources signing a “code of conduct” and assignment of some liability should anyone attempt to manipulate benchmark data.
The fact that there is no regulation yet in place has not stopped the EU antitrust chief who has already raided the offices of Shell, BP, and Statoil as part of an ongoing investigation of price manipulation. So you have to wonder, what’s to prevent the EU from knocking on your door if you just happened to be wrong? Or if you are the benchmark publisher and you disseminated information that turned out to be incorrect in reality? Kind of sounds like driving directions in Vermont from someone that has never been there: “Go down this road for 1 mile, then turn left one half mile before you see the large maple tree.” Just another burdensome regulation from big government that will mostly just increase compliance costs and nothing more…