The Principles are aimed at ensuring a globally-consistent approach to the oversight of commodity derivatives markets which will deliver effective supervision, combats market manipulation and improves price transparency. They are aimed at contributing to enhanced price discovery in commodity derivative markets as opposed in themselves to addressing absolute price levels or price volatility in an underlying physical commodity.
The Principles update and add to the guidance in the 1997 Tokyo Communiqué which set benchmarks for contract design, market surveillance and information sharing for physical commodity derivatives markets. They are primarily intended to apply to exchange-traded futures contracts, futures contracts options and options referenced to a physical commodity, index or price series which may settle in cash or by physical delivery, although many of the principles will also be applicable to OTC markets.
Masamichi Kono, Chairman of IOSCO’s Technical Committee, said: “The Principles set out in this Report help to ensure that the physical commodity derivatives markets serve their fundamental price discovery and hedging functions, while operating free from manipulation and abusive trading schemes. Market authorities play a key role in ensuring that commodity derivatives operate transparently, efficiently, and fairly, and these Principles, which include specific recommendations on information-gathering and intervention powers, will help them achieve these objectives. We urge all relevant market authorities to review their policies to put these Principles into effect. We firmly believe that these Principles represent a valuable contribution to addressing the G20’s legitimate concerns regarding the efficiency and integrity of commodity derivative markets by presenting concrete recommendations for market authorities that will support better functioning, better policed and more transparent commodity derivatives markets.”
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