CR05/2021 Principles for the Regulation and Supervision of ...

1 Principles for the Regulation and Supervision of commodity Derivatives Markets Consultation Report The Board OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS CR05/21 NOVEMBER 2021 This paper is for public consultation purposes only. It has not been approved for any other purpose by the IOSCO Board or any of its members. ii Copies of publications are available from: The International Organization of Securities Commissions website International Organization of Securities Commissions 2021. All rights reserved.

2 Brief excerpts may be reproduced or translated provided the source is stated. iii Foreword The Board of the International Organization of Securities Commissions (IOSCO) has published this Consultation Report with the aim of reflecting the changes and developments in the commodity derivatives markets since the publication of the existing IOSCO Principles for the Regulation and Supervision of commodity Derivatives Markets in 2011. How to Submit Comments Comments may be submitted by one of the three following methods on or before 17 January 2022. To help us process and review your comments more efficiently, please use only one method.

3 Important: All comments will be made available publicly unless anonymity is specifically requested. Comments will be converted to PDF format and posted on the IOSCO website. Personal identifying information will not be edited from submissions. 1. Email Send comments to The subject line of your message must indicate Public Comment on the Principles for the Regulation and Supervision of commodity Derivatives Markets If you attach a document, indicate the software used ( , WordPerfect, Microsoft WORD, ASCII text, etc) to create the attachment.

4 Do not submit attachments as HTML, PDF, GIFG, TIFF, PIF, ZIP or EXE files. 1. Facsimile Transmission Send by facsimile transmission using the following fax number: + 34 (91) 555 93 68. 2. Paper Send 3 copies of your paper comment letter to: Alp Eroglu International Organization of Securities Commissions (IOSCO) Calle Oquendo 12 28006 Madrid Spain Your comment letter should indicate prominently that it is a Public Comment on the Principles for the Regulation and Supervision of commodity Derivatives Markets. iv Contents Chapter Page 1 Introduction 1 A. Prior Task Force Work 1 B.

5 Principles Build Upon and Expand the Tokyo Communiqu Benchmarks 3 C. Evolving Markets and Legislation Prompt the Need for Expanded Principles 3 2 Statement of Intent 9 A. Authority, Process and Level of Supervision 9 B. Applicable commodity Derivatives Contracts 9 C. Relevant IOSCO work since the publication of the Principles and Other Structural Measures 10 3 Principles for the Design and/or review of Physical commodity Derivatives Contracts 12 A. Introduction 12 B. Principles for the Design and Review of Physical di ii 13 4 Principles on Data and Market Transparency 24 A.

6 Introduction 24 B. Principles on Data and Market Transparency 24 5 Principles for the Surveillance of commodity Derivatives 32 A. Introduction 32 B. Principles for the Surveillance of commodity Derivatives Mk 33 6 Principles to Address Disorderly commodity Derivatives 45 A. Introduction 45 B. Principles to Address Disorderly commodity Derivatives k 46 7 Principles for Enforcement and Information Sharing 54 A. Introduction 54 B. Principles for Enforcement and Information Sharing 54 v 8 Principles on Technological Developments in Commodities Derivatives Markets A.

7 Introduction B. Principles on Technological Developments in commodity 65 65 65 9 Principles on Promotion of Investor Education and Awareness A. Introduction B. Principle on Promotion of Investor Education and Awareness 69 69 69 10 Conclusion 71 Appendix A - Summary of the Principles 73 Appendix B - Glossary of Terms 80 Appendix C - Comparison Table.

8 Original Principles vs Revised Principles 84 1 Chapter 1 Introduction IOSCO has undertaken work to gain a better understanding of recent developments in the commodity derivatives markets and to update the existing IOSCO Principles for the Regulation and Supervision of commodity Derivatives Markets ( Principles ) to ensure these changes are appropriately addressed by the Principles . The 2021 revision of the Principles reflect these changes. The original Principles were published in September 2011 in response to the G-201 Leaders 2010 Seoul Declaration for further work on Regulation and Supervision of the commodity derivatives markets.

9 2 The Principles built upon the 1997 Tokyo Communiqu , which was the first internationally accepted guidance for contract design, market surveillance, and information sharing for the commodity futures The aim of the Principles is to ensure that the commodity derivatives markets serve their fundamental functions of facilitating price discovery and hedging, while remaining free from manipulation and abusive practices. A. Prior IOSCO Work IOSCO s work has been emphasized repeatedly by the G-20. At its Paris meeting in February 2011, the G-20 finance ministers and central bank governors stated that they looked forward to receiving IOSCO s recommendations on Regulation and Supervision of commodity derivatives markets notably to strengthen transparency and address market abuse.

10 4 Continued price 1 The Group of Twenty (G-20) finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin, on December 15-16, 1999, hosted by German and Canadian finance ministers. 2 See the G-20 Seoul Summit Leaders Declaration (November 11-12, 2010). Further work on Regulation and Supervision of commodity derivatives markets: We called especially on IOSCO s taskforce on commodity futures markets to report to the FSB for consideration of next steps in April 2011 on its important work , para 11, available at 3 In November 1996, following the revelations of huge losses at Sumitomo and the related adverse effects on the global copper markets, the CFTC and the UK Securities Investment Board, along with the relevant Japanese authorities, the Ministry of International Trade and Industry (MITI) and the Ministry of Agriculture, Forestry and Fisheries (MAFF)