Brussels, 6 June (Argus) — Oil and other energy benchmarks are unlikely to be deemed "critical" in proposed EU legislation. The European Commission intends to put forward a regulation covering benchmarks before the summer break
The commission's draft regulation covers financial, energy and other commodity benchmarks. If accepted by member states and the European Parliament, it would empower the European securities regulator Esma to supervise "critical Union" benchmarks, superseding national regulators in the country where such benchmarks are compiled. Benchmarks not supervised at EU level would be regulated by national authorities.
The draft proposal says critical benchmarks are those whose failure “would have a significant adverse impact on financial stability, the orderly functioning of the markets, consumers, or the real economy”.
Interbank offered interest rates such as Euribor and Libor are deemed "critical Union" benchmarks with cross-border impact in the proposal document. Contributors to critical Union and other 'critical' benchmarks could be forced to provide information to the benchmark administrator.
The question of which benchmarks are critical will be settled by implementing legislation. At present there is no intention to include energy benchmarks in this category.
But the proposal does contain a number of other requirements for all benchmarks used as reference prices for financial instruments or contracts.
European internal market commissioner Michel Barnier wants benchmarks based on real transactions but recognises the need to be realistic. "If there are no data because there are no transactions, we should allow the publication of indices based on estimates," Barnier said.
The draft includes proposals about governance, methodology and data integrity, and suggests that a legally binding code of conduct be signed by benchmark administrators and contributors. The commission would like to have the power to specify the terms in the code of conduct. All benchmark administrators would have to apply for authorisation.
The Commission wants the proposed benchmarks regulation to be agreed with the European Parliament and member states before EU elections in May 2014 and the end of the commission's mandate in October 2014. That may be difficult because of slow progress on other important financial regulations, which include rules for clearing and other derivatives trading.
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