The International Organization of Securities Commissions (IOSCO) has long taken a leadership role in providing guidance and best practices for regulation of commodity derivatives markets.  In 2010 and 2011, the G20 Leaders called for further work on regulation and supervision of the commodity derivatives markets, “enhanced transparency in both cash and derivatives markets as previously recommended by IOSCO,” and “asked IOSCO to finalize . . . its recommendations on regulation and supervision in this area especially to address market abuses and manipulation, such as through position management powers, including the authority to set ex-ante position limits where appropriate, among other powers of intervention.”[1]  IOSCO responded with the 2011 Principles for the Regulation and Supervision of Commodity Derivatives Markets (2011 Principles).  The stated aim of the 2011 Principles was to “help to ensure that the physical commodity derivatives markets serve their fundamental price discovery and hedging functions, while operating free from manipulation and abusive trading schemes.”[2]

Since the publication of the 2011 Principles, IOSCO has continued to monitor developments in the commodity derivatives markets, including through several implementation reviews of the 2011 Principles.  In 2019, IOSCO elected to update the 2011 Principles to reflect evolution in the markets, as well as other developments in the global economy, such as increasing globalization, digitalization, and the impact of geopolitical events.  This determination led to the publication today of updated Principles for the Regulation and Supervision of Commodity Derivatives Markets (2023 Principles).[3]  The newly-issued 2023 Principles also reflect regulatory developments.  New Principles in this update include Principles relating to:

• The role of price reporting agencies in price assessments, acknowledging the potential application of more recent work in oil markets to other commodity derivatives markets;
• The increased importance of high-quality data and information in price discovery and risk management;
• Dealing with unexpected disruptions in the market, pertinent to recent events including the COVID-19 pandemic and geopolitical events in Ukraine and elsewhere;
• Direct access to commodity derivatives markets by market participants;
• High-frequency and algorithmic trading; and
• Promotion of investor education.[4]

The 2023 Principles represent a significant revision to the 2011 Principles to ensure that the Principles in general are adapted to the ever-changing marketplace and remain relevant and useful on a going-forward basis.  Experience has taught us that misconduct and abusive trading often takes place across commodity futures, OTC derivatives, and physical markets, requiring increased coordination and resources to adequately detect and prevent such schemes.  Wrongdoers may seek to utilize jurisdictional boundaries to engage in regulatory arbitrage to conceal or obfuscate their misconduct or to hide from justice if discovered.

IOSCO’s work in coordinating between regulators in multiple jurisdictions is critical to protecting our markets and our market participants from harm.  For example, the increasing participation of retail participants in the commodity derivatives markets requires us not only to increase our vigilance against manipulative and deceptive schemes that might seek to exploit potentially less-sophisticated entrants, but also to increase our investor education efforts to empower investors with the requisite tools to protect themselves.

I fully support the adoption of the 2023 Principles, which are consistent with our statute and regulations, to the fullest extent possible.  I hope and expect that our counterparts around the world will similarly embrace them—for the protection of markets, and customers.  I commend the work of IOSCO, particularly Committee 7 on Derivatives, in updating and maintaining this important document.  I also would like to recognize CFTC staff from the Office of International Affairs who worked on the Final Report, including Jennifer Levin, Lily Chu, and Mauricio Melara.