* New EU rules could ruin oil market transparency - Argus
* Law could make North Sea Brent benchmark unworkable -
* European Commission says has right to regulate oil price
By Peg Mackey and Barbara Lewis
LONDON/BRUSSELS, July 9 Rigorous legislation
proposed by the European Commission on financial benchmarks
could destroy transparency in the oil market and force up energy
costs for consumers and industry, oil price publisher Argus
Media said on Tuesday.
The new rules aim to regulate oil price reporting agencies
(PRAs), whose daily assessments are used as benchmarks to settle
physical and derivative deals worth billions, as well as the
market sources who submit data to them.
Oil price publishers such as Platts - now the focus of an
oil pricing probe - along with smaller rivals Argus and ICIS,
want Brussels to adopt guidelines put forward by the
International Organisation of Securities Commissions (IOSCO)
that outlined recommended practices.
"The legislation is unworkable for commodity markets. As
both IOSCO and UK regulator Ofgem have warned, voluntary
contributions and price information from market sources to
journalists are vulnerable to precipitous regulation," said
Adrian Binks, Chairman and Chief Executive of Argus Media.
"The result will be to destroy transparency in the European
oil and other energy markets and ultimately disadvantage
European manufacturing and the consumer."
In a 28-page briefing paper sent to Brussels, privately held
Argus also says the proposals, if enacted, could make benchmarks
such as North Sea Brent unworkable, make risk hedging highly
problematic and put Europe's energy security at risk.
"It would make voluntarily providing market data to PRAs so
difficult and risky that the flow of information would be
significantly reduced, resulting in less transparency and in
commodity price benchmarks that are less robust and less
reliable," it says.
"Yet only these weaker benchmarks from dysfunctional and
less transparent energy markets would be allowed to be used in
financial contracts. This would be an extraordinary and
Platts, a unit of McGraw-Hill, and ICIS, a unit of
Reed Elsevier, share the views of Argus, say industry
sources, and are commissioning external studies of the impact of
the Commission's proposals on the energy market.
Brussels is expected to formally unveil its benchmark
proposals in September, according to EU officials.
COMMISSION SAYS HAS RIGHT TO REGULATE
The PRAs provide clients with prices assessed by reporters
canvassing sources in the opaque $2.5 trillion energy market.
Journalists contact traders to see where they value the market -
trying to avoid pitfalls such as reflecting only a buyer's or
The fallback position for some PRAs is that if the companies
are journalistic, the European Union has no remit to touch them.
Brussels has a different view.
"The fact that a company engages in journalistic activities
does not exempt it from financial legislation," a European
Commission source told Reuters.
"What the Commission is preparing is a legislative proposal
on the regulation of benchmark setting as an activity - not the
activity of journalism."
Oil price publishers were already under renewed scrutiny
after European authorities raided the London office of Platts -
- as well as oil majors BP, Shell and Statoil
, saying they suspected oil prices had been manipulated.
The draft law, which is unlikely to take effect before 2014,
proposes that regulation of top benchmarks like Libor and oil be
shifted to the Paris-based European Securities and Markets
The agencies have strenuously argued that commodities
markets are very different from the rates market and should be
exempt from external oversight and new regulations proposed in
the aftermath of the Libor rate-rigging scandal.
"The primary difference is that the benchmarks in the energy
and commodity markets derive from a need to develop pricing
information for physical transactions, unlike benchmarks
specific to financial markets that were set up purely to allow
the pricing of financial instruments," says the Argus paper.
Though oil and trading companies have yet to formally
consult with the Commission on its benchmark proposals, they are
broadly aligned with the PRAs.
"In its current form, this proposal would create grave
disturbance in the physical market, if not chaos," said a senior
oil executive who requested anonymity.
Platts said it stood by its statement of June 6: "We share
the EC view that benchmarks should be robust ... and we will
continue to work with the Commission and others on this issue,
but are wary of any measures that could discourage participation
in the price reporting process."
Thomson Reuters, parent of Reuters news, competes
with Platts, Argus and ICIS in providing news and information to
the oil markets.
(Editing by David Evans)