OR08/10 Task Force on Commodity Futures Markets Report to the G-20

Task Force on Commodity Futures Markets Report to the G-20 TECHNICAL COMMITTEE OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS OR08/10 NOVEMBER 2010 2 CONTENTS Chapter Page Executive Summary 3 1 OTC Commodity Derivatives Market Transparency 7 A. Initiatives with Major OTC Derivatives Participants 7 B. Initiatives with the Bank for International Settlements 13 2 Futures Market Transparency 15 3 Physical Cash Commodity Market Transparency 16 A. Encouraged greater transparency of physical commodity market transactions 16 B. Price reporting agencies 16 4 Ongoing Work 18 Appendix A – Why Transparency is Important for Commodity Markets 19 Appendix B - Contract Design as a means to promote Financial Oil Market Integrity 23 3 Executive Summary The IOSCO Technical Committee created the Task Force on Commodity Futures Markets1 (Task Force) in September 2008 in response to global concerns, including those voiced by the G-8 Finance Ministers, concerning price increases and volatility in oil prices. Responding to these concerns, the Task Force met and authored a report in March 2009 containing recommendations for improving commodity derivative regulation by securities and futures regulators. The G-20 Leaders endorsed these March 2009 recommendations in their September 2009 Pittsburgh Leaders’ Statement, called on the Task Force to collect more oil market data and requested further recommendations on ways to reduce volatility in energy prices. This Report describes the progress that has been made by the Task Force since its June 2010 Report to the G-20 and our plans going forward. In order to put this work in context, the Report also reviews briefly certain aspects of the Task Force’s March 2009 Report, which provides the overall framework for understanding the various ongoing work-streams. Over-the-Counter Commodity Derivatives Market Transparency  The Task Force’s work continues to be informed by the conclusion in its March 2009 Report that price discovery in the financial commodity markets, as well as analysis of the interactions between the financial and cash commodity markets, should be improved by promoting greater transparency across futures, over-the-counter (OTC) derivative and cash commodity markets.  We have focused our recent work on promoting transparency in the OTC commodity derivative markets because transparency in the organized futures markets is well established, and the physical markets are typically beyond the jurisdiction of IOSCO’s securities and derivatives regulators.  The Task Force recognizes the importance of transparency in both financial and physical commodity markets because these markets are interrelated; asymmetry of information in either can hinder the process of price discovery. The interdependence between cash and futures prices and fundamentals of the underlying market is likely to lead to wide-ranging consequences where there is a lack of information or the provision of misinformation. As financial regulators we have chosen to focus our 1 The IOSCO Task Force on Commodity Futures Markets is co-chaired by the Commodity Futures Trading Commission (United States) and the Financial Services Authority (United Kingdom) and the following IOSCO members participated in the Task Force: Comissão de Valores Mobiliários (Brazil); Alberta Securities Commission (Canada, Alberta); Ontario Securities Commission (Canada, Ontario); Autorité des marchés financiers (Canada, Quebec); China Securities Regulatory Commission (China); Dubai Financial Services Authority (Dubai); Autorité des marchés financiers (France), Bundesanstalt für Finanzdienstleistungsaufsicht (Germany), Securities and Futures Commission (Hong Kong), Forward Markets Commission (India); Commissione Nazionale per le Società e la Borsa (Italy), Financial Services Agency (Japan); Ministry of Agriculture Forestry and Fisheries (Japan); Ministry of Economy, Trade and Industry (Japan); Kredittilsynet (Norway), Monetary Authority of Singapore (Singapore); Capital Market Authority (Saudi Arabia); and Swiss Financial Market Supervisory Authority FINMA (Switzerland). 4 efforts on what are considered the main areas of concern in the financial trading of oil. A more detailed rationale for this pursuit of transparency is set out in Appendix I to this report.  In furthering the objective of transparency, we have reached out beyond major dealers to include, to the extent practicable, a broader subset of OTC derivatives participants in oil; supported the prior commitments made by the Commodities Major Dealers (CMD) group in OTC oil derivatives to