States say draft EU rules could undermine market benchmarks
* Commission hopes for agreement on law around year-end
* Member states want detail on definitions, which benchmarks
* EU ministers sign off on market abuse law on Monday
BRUSSELS, April 14 (Reuters) - Draft EU law to regulate financial instruments could undermine major market benchmarks such as Brent crude unless the same rules apply to non-EU countries, Britain and four other EU nations warned.
The Commission, the EU executive, published a draft proposal last year on rules to prevent the rigging of financial benchmarks.
Five member states - Britain, Bulgaria, Denmark, the Netherlands and Poland - have submitted a list of questions to the Commission on the draft law, according to a document seen by Reuters.
"The regulation ... has the potential, if positive equivalence decisions are not adopted in respect of third countries, to jeopardise the use of a number of important benchmarks to the EU," the document says.
The countries want to know which conversations the Commission has had with authorities in non-EU nations. Neighbouring Switzerland, for instance, is home to the offices of commodity trading houses such as Gunvor and Vitol .
The other questions include how many benchmarks the Commission expects to be affected; how many benchmark administrators would be involved; and how the Commission defines "critical benchmarks".
The original proposal from the executive EU Commission said a critical benchmark should be used to reference financial instruments or contracts with a value of more than 500 billion euros ($694.4 billion).
Under that rule, major commodities such as Brent would be included and be subject to closer scrutiny than lesser benchmarks.
The concerns of the five member states mirror those raised by some in the European Parliament over the scope of the law and whether national regulators or the EU-wide European Securities and Markets Authority should supervise the critical markers.
The economic and financial crisis has increased the pressure for tougher market regulation.
But the draft proposal faces a long wait to become law.
The European Parliament has said it will not vote on the issue before elections in May, which means it is stalled until new members of parliament and a new set of Commissioners take office.
Commission spokeswoman Chantal Hughes said the Commission still believed a final agreement by the end of this year or early next year was possible.
While the stalled draft proposal seeks to prevent market manipulation in the first place, EU ministers meeting in Luxembourg on Monday gave their final approval to an EU law that means anyone caught rigging benchmarks faces jail time.
Members of the European Parliament are expected to add their backing this week, pending official publication of the new law later this year.
($1 = 0.7201 Euros) (Reporting by Barbara Lewis; additional reporting by Huw Jones in London; editing by Jane Baird)