* EU's Barnier seeks greater transparency for benchmarks
* Softens earlier plans for blanket legal liability, EU
* Commodities industry warns new rules could undermine trade
By John O'Donnell and Barbara Lewis
BRUSSELS, Sept 18 European Union regulators
proposed the first set of EU-wide rules to stamp out rigging of
commodity and interest-rate benchmarks, forcing transparency on
multi-trillion-euro markets that have previously escaped
The draft law aims to prevent scandals such as the rigging
of the London Interbank Offered Rate (Libor), used to price some
$300 trillion of products including home loans and credit cards
If agreed, the legislation will affect how all benchmarks
are set, including North Sea Brent crude, which helps to
determine the price of gasoline. The reform will introduce a
basic legal framework, with standards and sanctions, to govern
all benchmarks across the 28-country European Union.
The rules will mainly be enforced by national regulators but
benchmarks that are considered particularly critical because
they are used as a reference for the largest markets will face
extra scrutiny from a group of EU member state supervisors.
"For the first time in this sector, regulators are
attempting to strengthen the nature of reputational markets,
ensuring that administrators and submitters comply with a
minimum set of standards to minimise the likelihood of
manipulations," Diego Valiante, of Brussels-based think tank the
Centre for European Policy Studies, said.
The Commission wants supervisors to be able to force banks
or others to contribute data to those critical benchmarks, such
as Libor, defined as those used as a reference for at least 500
billion euros ($667 billion) of financial instruments.
This would cover some interest-rate benchmarks, but
Commission officials said they expected it to exempt most
commodities. This could change in the course of negotiations to
finalise the law.
One of Germany's top regulators questioned the practicality
of forcing participation.
"It is not a good idea for a regulator or a supervisor to
force a bank to submit to a benchmark if the bank has got valid
reasons why it's not doing it," Elke Koenig, the president of
regulator Bafin told journalists.
Earlier versions of the draft proposed oversight for all
benchmarks by an EU body in Paris, as favoured by some
lawmakers. But the plans were watered down after objections from
the commodities industry and Britain, the bloc's largest
The proposed rules chiefly rely on countries and their
national authorities, in London and elsewhere, for enforcement.
"It's not weak supervision that I'm proposing," said the
EU's regulation chief, Michel Barnier. "I put my confidence in
these British or Belgian supervisors to do their jobs."
London's main financial community said it was largely happy
with the proposals although commodity traders said their
business should be exempt from any Brussels oversight.
Traders, who for decades have relied on an all-but
unregulated system of contributing information to guide prices
for oil and other valuable commodities, say the rules would
discourage market participants from submitting their prices.
For the critical interest-rate benchmarks, regulators would
have the power to demand banks submit price data. This would
help reverse a trend of banks wanting to disassociate themselves
from some benchmarks, making them difficult to compile.
"The EU has watered it down a bit," said one oil industry
executive, speaking on condition of anonymity. "But there are
still some big problems - like requiring price reporting
agencies to make their source sign a code of conduct."
Commodity price assessment agencies Platts, a unit of
McGraw-Hill, and smaller rivals Argus and ICIS, part of
Reed Elsevier, want Brussels to align merely with
non-binding industry guidelines.
The European Parliament and EU member states will have to
approve the draft before it become law and could toughen up,
scrap or water down any part of it.
Some lawmakers are disappointed that the proposals were
eased. The EU originally wanted the European Securities and
Markets Authority (ESMA), a thinly-staffed fledgling EU body
based in Paris, to oversee the market but member states such as
Instead, groups of supervisors from different countries, as
well as ESMA, will exchange information, according to the new
"It's disappointing," said Sven Giegold, a German member of
the European Parliament. "The Commission has given in to British
demands to keep oversight of Libor and that is a mistake."
"The national supervisors didn't catch previous manipulation
and I would expect more independence from a European Authority,"
But in London, some welcomed the change.
"This is a positive sign that European policymakers
understand the need for flexibility when it comes to supervising
Libor and other benchmarks," said Mark Boleat, Policy Chairman
at the City of London Corporation.
"A one-size-fits-all approach would be inappropriate,
especially given that significant reforms have already been put
forward by British regulators."
The legislative response follows total fines of $2.6 billion
on Royal Bank of Scotland, Barclays and Swiss
bank UBS over the rigging of Libor.
The Commission's antitrust chief continues to investigate
benchmarks including Libor and has also raided offices of oil
majors Shell, BP and Statoil in an
investigation of suspected manipulation of oil prices.