Implementation of IOSCO's Principles for Oil Price Reporting Agencies
Fastmarkets RISI Indices seeks to have the most reliable price assessments in the forest products industry by implementing the highest standards of price reporting. As part of this effort, Fastmarkets RISI Indices is in the process of aligning its price assessment practices with IOSCO’s Principles for Oil Price Reporting Agencies.
About the PRA Principles
In October 2012, IOSCO released the PRA Principles, guidelines created based on an exhaustive study of oil market stakeholders to ensure the reliability of oil price assessments.
A summary of the Principles:
- Methodology – All assessment criteria and procedures should be formally documented and made public.
- Market Data Used in Price Assessments – PRAs should take sufficient measures to ensure meaningful and reliable data, including:
- Assigning more weight to concluded deals over bids/offers
- Ensuring submitted data are accurate and comprehensive
- Integrity of the Reporting Process
- Implement quality controls and standards for who may submit data.
- Ensure robust supervision of assessments: Qualifications of assessors, supervision of assessors, internal sign-off on assessments.
- Conflicts of Interest – Implement comprehensive procedures to ensure freedom from all manner of conflicts of interest.
- Complaints – Implement a formal complaint procedure.
- External Auditing – Implement an annual independent external auditing of a PRA’s compliance with its methodology.
Application of the Principles to Fastmarkets RISI Indices
The overall framework embodied in the Principles is being implemented for all assessments published by Fastmarkets RISI Indices. In certain markets, a small number of the detailed provisions don’t apply or are infeasible.
The Principles were designed for price assessments referenced in oil markets, many of which have highly-liquid exchange-traded derivatives contracts. They take into account the specificities of these markets, which tend to be more commoditized, more liquid and have more market participants than markets covered by Fastmarkets RISI. Moreover, the existence of liquid oil derivatives trade creates additional market dynamics that need to be addressed in price assessment methodologies for those markets. Together, these factors mean that some of the PRA Principles are infeasible or unnecessary in markets covered by Fastmarkets RISI.
Fastmarkets RISI has put its price assessments into categories according to how the IOSCO Principles are applied. The price assessment methodologies for each market specify which assessments fall into which category.
Benchmark price assessments most commonly used as reference prices in physical supply agreements, and/or over-the-counter or exchange traded derivatives.
Implementation of IOSCO Principles:
The following provisions have not been implemented:
- 1.5b (Publication of stakeholder comments) – Because Fastmarkets RISI’s experience suggests that most stakeholders want such information kept private, stakeholder comments will be published only if a stakeholder specifically requests this to be done.
- 2.3a (Publication of assessment metadata including volumes and price ranges) – Volume information is frequently closely held by sources. In other cases, revealing this information would allow customers to deduce whether certain market players are represented in the data, which would increase the antitrust risk of data providers. For these reasons, it’s not feasible to publish this information.
- 2.21 (External Auditing) – Fastmarkets RISI will commission one independent external audit of its compliance with the Principles and adherence to its published methodology for one Category 1 price assessment per year.
Price assessments sometimes used as reference prices
Implementation of IOSCO Principles: The following provisions have not been implemented:
- Same exceptions as Category 1 above
- 2.21 (External Auditing) – Not implemented
Price assessments not used as reference prices
Implementation of IOSCO Principles: Comply with the concepts underlying the Principles