Task Force on Commodity Futures Markets

Final Report

TECHNICAL COMMITTEE

OF THE

INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS

MARCH 2009
2

CONTENTS

Chapter Page

Executive Summary 3

Background 4

Discussion 6

 Volatility and the role of increased participation by financial participants in 

the Futures Markets



6

 Greater transparency of fundamental commodity market information is 

needed

11

 Transparency and Market Surveillance 



14

 Enforcement Challenges Involving Commodity Futures Markets 18

 Enhancing Global Co-Operation 20

Appendix 22
3

Executive Summary

The IOSCO Task Force on Commodity Futures Markets (Task Force) was formed following 

the concerns expressed by the G-8 Finance Ministers regarding the price rises and volatility 

in agricultural and energy in 2008. The Task Force has made the following conclusions and 

practical recommendations:

 Reports by international organizations, central banks and regulators in response to the 

above concerns that were reviewed by the Task Force suggest that economic 

fundamentals, rather than speculative activity, are a plausible explanation for recent 

price changes in commodities. However, given the complexity and often opacity of 

factors that drive price discovery in futures markets, and the critical importance of 

these issues to world economies, continued monitoring is appropriate to improve 

understanding of futures market price formation and the interaction between regulated 

futures markets and related commodity markets1;

 The Task Force has identified factors that potentially inhibit the ability of commodity 

futures market regulators (futures market regulators)2to access relevant information 

concerning the related commodity markets, over which futures market regulators 

generally do not have authority, that may be needed to understand fully price 

formation in a particular futures market contract or to detect manipulative or other 

abusive trading by market participants holding large positions in those commodity 

contracts. Accordingly, the Task Force is calling for transparency improvements with 

respect to the availability and quality of information on commodities that are intended 

to improve the ability of futures market regulators to:

o understand with greater clarity the role of speculative and commercial 

activity in commodity futures markets;

o gain a more comprehensive view of trading activities in, and the structure 

of, the related commodity markets that may affect price formation on 

commodity futures markets; and

o detect, prosecute3, and deter manipulation and other trading abuses in 

commodity futures markets, which may involve related commodity 

markets.

 

1 The term “related commodity market” refers broadly to the cash commodity that underlies the futures 

contract, as well as positions in privately negotiated transactions involving the same commodity that 

are not traded on a regulated exchange (e.g. forward contracts, swaps, options and other structured 

products). The purpose of enhancing the transparency of related information is to assist in determining 

whether market abuses may be taking place in the regulated futures market. Correspondingly the term 

“underlying” commodity market refers solely to the physical/cash market.

2

The term “commodity futures market regulator” (futures market regulator) is intended to refer 

specifically to the regulator of the commodity futures markets. Because regulatory structures vary 

across jurisdictions (e.g., enforcement and supervisory responsibilities with respect to futures markets 

may reside in different entities), the recommendations in this report should be read in a manner that is 

consistent with, and appropriate to, a particular jurisdiction‟s regulatory structure. However, the 

recommendations are not necessarily intended to only apply to futures market regulators, but also may 

apply to self-regulatory organizations or an exchange or both where the context permits.

3 The term “prosecution” is used in a wide sense for the purposes of this report. It covers all types of 

enforcement action against manipulation and other market abuse practices, including imposition of 

administrative fines or the referral of a case to the public prosecutor. 
4

 Further, to respond to the increasingly global nature of commodity markets, the Task 

Force encourages cooperation and the sharing of information among futures market 

regulators. The Task Force recommends that the Technical Committee re-endorse to 

the IOSCO membership and to relevant non-IOSCO stakeholders the continued 

relevance of the Tokyo Communiqué and that futures market regulators should 

evaluate their oversight programs for compliance with the Tokyo Communiqué 

guidance;

 Manipulation of market price is a clear threat to the integrity of the marketplace and 

to the key price discovery and risk management role that futures markets play in the 

larger economy. Because manipulative schemes are often complex and may involve 

conduct that takes place on commodity futures, OTC derivatives and physical 

commodity markets located in one or more jurisdictions, the Task Force is calling for 

futures market regulators to review their existing powers to ensure that they have the 

necessary legal framework that is able to provide an effective enforcement deterrent.

o Among other things, the Task Force recommends that futures market 

regulators review powers and, if necessary, take appropriate steps to promote 

improvements or eliminate existing impediments in their legal and regulatory 

framework that may inhibit their ability to detect and enforce manipulation 

cases, such as the inability to access certain market information, the inability 

to enforce against attempted manipulation and the inability to investigate 

unregulated entities; and

o A key recommendation is that futures market regulators should have sufficient 

resources for an enforcement program that specifically targets manipulative 

and abusive trading conduct.

 Finally, in order to enhance the sharing and coordinating of surveillance and 

enforcement techniques, the Task Force recommends that futures market regulators 

meet regularly for the purpose of informal sharing of their perspectives and concerns 

on trends and developments in commodity markets as well as the sharing of market 

surveillance and enforcement approaches.
5

Background

The Task Force on Commodity Futures Markets4, which is co-chaired by the United States 

Commodity Futures Trading Commission (CFTC)5and the United Kingdom‟s Financial 

Services Authority (FSA)6, was created in September 2008 by the Technical Committee of 

the International Organization of Securities Commissions (IOSCO). The Technical 

Committee initiated the Task Force in 2008 following political, academic and media debate 

concerning the behaviour of commodity markets, both financial (i.e. the regulated commodity 

futures markets) and underlying (i.e. cash), in a period which has seen considerable price 

rises in certain commodities and increased market volatility.

The G-8 Finance Ministers also raised strong concerns at their June 2008 Meeting in Osaka, 

Japan about the sharp rise in oil and food prices and the impact on global macro-economic 

stability as well as people‟s welfare and development prospects. The G-8 Finance Ministers 

specifically called for “national authorities to examine the functioning of commodity futures 

markets and to take appropriate measures as needed.”7 The Task Force‟s work accordingly 

has been conducted in the light of this debate. 

Responding to these concerns, the Task Force held meetings in Washington, DC in December 

2008 and in London in January 2009. The group focused on the following topics:

 Volatility and the role of new participants in futures markets;

 Transparency and market surveillance;

 Challenges to enforcement; and

 Enhancing global cooperation. 

The primary focus of the Task Force was whether supervisory approaches were keeping pace 

with market developments, including the participation of new categories of traders such as 

index funds, whether transparency in commodity markets was sufficient in light of current 

concerns, and whether supervisory and enforcement cooperation could be improved. 

Therefore, the Task Force members have taken the opportunity to review further the 

appropriateness of their regulatory toolsets for the commodity futures markets for which they 

have responsibility. However, the Task Force also considered the wider commodity markets, 

 

4 The Task Force was launched in October 2008 http://www.iosco.org/news/pdf/IOSCONEWS128.pdf. 

The following IOSCO members participated in the Task Force: Comissão de Valores Mobiliários

(Brazil); Ontario Securities Commission (Canada, Ontario); Autorité des marchés financiers (Canada, 

Quebec); Dubai Financial Services Authority (Dubai); Autorité des marchés financiers (France), 

Bundesanstalt für Finanzdienstleistungsaufsicht (Germany), Securities and Futures Commission (Hong 

Kong), Commissione Nazionale per le Società e la Borsa (Italy), Ministry of Economy, Trade and 

Industry (Japan); Kredittilsynet (Norway), Financial Services Authority (United Kingdom), 

Commodity Futures Trading Commission (United States).

5 The Commodity Futures Trading Commission (CFTC) was created in 1974 as an independent agency 

with the mandate to regulate commodity futures and option markets in the United States. The agency's 

mandate has been renewed and expanded several times since then, most recently by the Commodity 

Futures Modernization Act of 2000.

6 The Financial Services Authority (FSA) is an independent non-governmental organization responsible 

for regulating financial services in the United Kingdom with statutory powers given by the Financial 

Services and Markets Act 2000.

7

Statement of the G-8 Finance Ministers Meeting, June 14, 2008, Osaka, Japan 

http://www.mof.go.jp/english/if/su080614.pdf.
6

including the related markets for which, in the main, its members do not have oversight 

responsibility.

Given this background, the Task Force‟s recommendations relate to both regulated futures 

markets and related commodity markets. Certain of these related commodity markets may be 

regulated and/or supervised by an authority that is separate from the futures markets regulator 

and co-ordination with the appropriate authority is important in this regard. The Task Force 

acknowledges that regulators in different jurisdictions have different responsibilities and 

powers and that, its recommendations will not apply equally to all. Accordingly, the Task 

Force recommendations should be read in this light.
7

Discussion

1. Volatility and the Role of New Participants in the Futures Markets

The extent to which speculative activity by new participants (e.g. index funds)8in agricultural 

and energy commodity futures contracts9and economic fundamentals have each contributed 

to extreme price movements and volatility in the underlying physical commodities has been a 

matter of intense political and academic debate.

In light of the practical focus of the Task Force as well as resource and time constraints the 

Task Force did not attempt to conduct original research on cash and futures market data or to 

evaluate comprehensively the large volume of studies and reports that have been conducted 

on this issue. Instead, the Task Force relied primarily on reviews that were conducted in 

2008 by the International Monetary Fund (IMF) staff, the European Commission (EC), Her 

Majesty ́s Treasury (HMT) and the United States Inter-Agency Task Force (ITF) chaired by 

staff of the CFTC, as they provide a representative sampling of how available evidence has 

been interpreted.

The reports reviewed by the Task Force do not support the proposition that the activity of 

speculators has systematically driven commodity market cash or futures prices up or down on 

a sustained basis. These reports suggest that economic fundamentals, rather than speculative 

activity, are a plausible explanation for recent price changes.

An analysis of available data is found in the IMF ́s World Economic Outlook , published in 

October 2008. The World Economic Outlook specifically examined “whether the recent 

commodity price boom had been underpinned by the rapid rise in investment in commodityindexed assets” and concluded that:

“Despite recent financial innovation in commodity markets, such as indexing, which 

has allowed investors to benefit from rising commodity prices without having to 

maintain physical inventory holdings, there is little discernable evidence that the 

buildup of related financial positions [in commodity markets] has systematically 

driven either prices for individual commodities or price formation more broadly.”

10

In reaching this conclusion, the World Economic Outlook considered studies using timeseries analyses that had examined whether changes in commodity financial positions had led 

to commodity price changes and noted that such recent studies “have not found evidence of 

systematic causality between positions and prices in either direction.”11 The IMF staff 

considered studies that examined inventory behavior and observed that “the data suggest that 

although inventories for some commodities increased somewhat in recent years, inventories 

 

8

 Commodity index funds, which invest in commodity futures contracts, have increasingly been used by 

pension funds and other large institutions as a means to obtain greater diversification in their 

investment portfolios.

9

Particularly the oil and natural gas markets were the focus of the debate about energy commodities.

10 IMF World Economic Outlook, Chapter 3 p.87, International Monetary Fund (October 2008), 

http://www.imf.org/external/pubs/ft/weo/2008/02/index.htm 

11 IMF World Economic Outlook, Chapter 3 p.89. On the contrary, the studies in question found that “the 

direction of financial flows was often inc0nsistent with the direction of price movements. For example, 

while crude oil prices rose sharply in May and June 2008, net speculative positions declined.”
8

for other commodities that had significant price appreciation declined or remained broadly

stable.”12 

Finally, the World Economic Outlook examined the relationship between the financialization

of commodities i.e. the increased commitment by investors to commodities as an asset class,

of commodities and price levels, volatility and price co-movements across markets and stated 

that: 

“although financialization may have led to increases in co movement between some 

commodities, particularly gold, no apparent systematic connection is found to either 

price volatility or price changes. These findings are consistent with recent studies in 

the area by the CFTC. Thus, there is little evidence to suggest that trading in futures 

markets has driven the price run-up or has destabilized the commodity markets during 

the first half of 2008.”

13

Overall, the World Economic Outlook concluded that:

“the current commodity boom has, broadly speaking, reflected the interaction of 

strong demand, low inventory and spare capacity levels, slow supply expansion in key 

sectors and adverse supply shocks.”

14

Fundamental factors were viewed as similarly driving the drop in oil prices.15 Although the 

World Economic Outlook concluded that there was no evidence of long term systemic effect 

due to speculation on commodity prices, it suggested that “short term expectations can be 

influenced by sentiment and investor behavior, which can amplify short-term price 

fluctuations, as in other asset markets.”16

 

12 IMF World Economic Outlook, Chapter 3 p.89.” These inquiries posit that in order for financial market 

speculation to have a systematic effect on commodity prices, it must be accompanied by an increase in 

hoarding of physical inventories. Although the IMF concluded that, there is little evidence of a 

systematic inventory hoarding of commodities, it added a caveat “that data on commodity inventories 

are poor and lack global coverage.” 

With respect to inventories, the U.S. Inter-Agency Task Force found that “U.S. inventories for crude oil and 

gasoline were very low during the first half of 2008. Weekly data since June 2008 indicates that U.S. 

crude oil and gasoline inventories rose to near normal levels, though gasoline stocks have fallen 

dramatically due to the effects of Hurricanes Gustav and Ike.” The Inter-Agency Task Force on 

Commodity Markets (July 2008) at p.8.

13 IMF World Economic Outlook, Chapter 3 p.92.” 

14 IMF World Economic Outlook, Chapter 3 pp.83-84. International Monetary Fund (October 2008), 

15

 The IMF World Economic Outlook concluded that: “Oil prices have eased recently on (1) increased 

OPEC production (primarily in Saudi Arabia); (2) data signaling a continued decline in U.S. demand 

that seems to reflect a growing demand response to high prices and not just slowing income; (3) 

prospects for lower growth in other major advanced economies; and (4) less-supportive financial 

conditions.” World Economic Outlook, Chapter 3 p. 96. International Monetary Fund (October 2008), 

http://www.imf.org/external/pubs/ft/weo/2008/02/index.htm

16 “Because most commodities are storable, they are real assets, and their prices are thus affected not only 

by current market conditions but also by future expectations. “ IMF Economic Outlook at p. 87 

(October 2008). See Oil Prices: the True Role of Speculation, Noel Amnec, Benoit Maffei and Hilary 

Till, EDHEC Risk and Asset Management Research Centre (November 2008) at p. 27, which cited 

studies that assert a short term interaction effect between futures trading and cash prices. The HM 

Treasury Report observed that futures market signaling about future expectations can influence a 

producer‟s decision whether to hold on to stocks, which decision could in turn feed through to the spot 

price. See Global Commodities: a long term vision for stable, secure and sustainable global markets

(June 2008) at p. 24.
9

An EC report similarly concluded that “both the oil price increases seen in recent years and 

the price fall over the past weeks have been mainly driven by demand and supply factors.”17

In discussing the growing political concern that financial market speculation has driven oil 

prices to artificially high levels i.e. beyond the level justified by market fundamentals, the EC 

report first distinguished between two types of speculation: the first type of speculation was 

described as being:

“„linked to the expected evolution in market fundamentals, which it characterized as 

an essentially positive feature of the market, facilitating price discovery and risk 

management for the investor, while providing a timely signal of the need for 

adjustments in structural supply and/or demand in the market‟ [while] „The second 

type of speculation can result in the emergence of a speculative bubble, reinforcing 

the fundamentals-based (and usually upward) price trend‟”

“While the first and favourable type of speculation certainly has contributed to the 

recent surge in oil prices, there is little evidence of the second, more detrimental type 

of speculation”18

A HMT report reached similar conclusions,

19 observing:

“Nevertheless, taken together the available evidence suggests that derivative investors 

are not driving price increases and, although there is insufficient evidence to 

conclusively rule out any impact, it is likely to be only small and transitory relative to 

fundamental trends in demand and supply for the physical commodities.”

20

Preliminary CFTC staff studies conducted for an ITF did not find evidence that various 

categories of financial participants, either individually or as a whole, were systematically

driving commodity prices.21 The ITF‟s studies relate to price movements and focus on 

 

17 First Interim Report on Oil Price Developments and Measures to Mitigate the Impact of Increased Oil 

Prices (European Commission (1 September 2008)

18 Id. at p. 5-6. In effect, the conclusion supports the view that the futures markets were in fact operating 

as price discovery markets. See also “How Should We Respond to Asset Bubbles” by Governor 

Frederic S. Mishkin, Board of Governors of the United States Federal Reserve System (May 15, 2008) 

on the difficulty of identifying asset bubbles and possible policy approaches. 

http://www.federalreserve.gov/newsevents/speech/mishkin20080515a.htm 

19 See Oil Prices: the True Role of Speculation, Noel Amnec, Benoit Maffei and Hilary Till, EDHEC 

Risk and Asset Management Research Centre (November 2008). http://www.edhecrisk.com/features/RISKArticle.2008-11-26.0035. This paper argues that “despite the appeal of blaming 

speculators, supply-and-demand imbalances, the fall of the dollar and low spare capacity in the oil 

producing countries were the major causes of the initial sharp rise.” 

20 See Global Commodities: a long term vision for stable, secure and sustainable global markets HM 

Treasury, (June 2008) at p. 23. http://www.hm-treasury.gov.uk/d/globalcommodities.pdf

21 The Inter-Agency Task Force on Commodity Markets (July 2008) concluded that: “The Task Force‟s 

preliminary assessment is that current oil prices and the increase in oil prices between January 2003 

and June 2008 are largely due to fundamental supply and demand factors. During this same period, 

activity on the crude oil futures markets – as measured by the number of contracts outstanding, trading 

activity, and the number of trades – has increased significantly. While these increases broadly 

coincided with the run-up in crude oil prices, the Task Force‟s preliminary analysis to date does not 

support the proposition that speculative activity has systematically driven changes in oil prices.” The 

staff report is preliminary in nature and the Task Force is continuing to study the crude oil market as 

part of its longer term activities. See 

http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfinterimreportoncrudeoil0708

.pdf.
10

whether various groups or subgroups of traders trade in advance of price movements or in 

response to past price movements. The empirical regularity disclosed by these studies is that 

financial participants do not trade in advance of price changes, but rather trade in response to 

past price changes. The staff interim report noted, however, that it was preliminary in nature 

and that further study of the crude oil market would continue as part of its longer term 

activities.

The Task Force recognizes that there has been controversy surrounding the interaction 

between futures market trading and underlying commodity market prices. Such controversy 

is likely to continue due to the broad economic impact of price increases in basic

commodities, the complexities of markets and data limitations. For example, as observed in 

the HM Treasury Report “there remains a need for sufficient information on financial flows 

into commodity derivatives to ensure an accurate understanding of market developments.”

22

Moreover, scrutiny of regulated futures markets is facilitated because they operate in a highly

transparent environment. In contrast, there has not been a similar focus on the drivers of the 

huge increase in prices of other cash commodities such as iron ore and other commodities 

which are not the subject of futures trading.23

Accordingly, continued monitoring of commodity markets is appropriate in order to address 

these concerns and to improve futures market regulators‟ understanding of futures market 

price formation and interaction between, regulated futures markets and related commodity 

markets. Moreover, as discussed below, the Task Force is calling for certain transparency 

improvements that are intended to facilitate such monitoring. These transparency 

improvements may also enhance market participants‟ own ability to make decisions about 

market structure and price movements.

 

22 See Global Commodities: a long term vision for stable, secure and sustainable global markets HM 

Treasury, (June 2008) at p. 25. http://www.hm-treasury.gov.uk/d/globalcommodities.pdf See also the 

limitations that should be taken into account when interpreting the analyses contained in the Interim 

Report of the US Inter-Agency Task Force on Commodity Markets at pp. 28-29; and the 

acknowledgement in Oil Prices: The True Role of Speculation at fn 1 p. 37, that “ultimately, only 

dynamic frameworks will likely be satisfactory in comprehensively explaining the evolution of the 

price of crude oil during the first seven months of 2008.”

23 See, e.g. IMF World Economic Review at p. 91. “Indeed, many commodities without significant 

futures markets – such as iron ore and rice – have experienced more price appreciation than those with 

sizeable future markets, such as gold and crude oil.” Other commodities that have experienced large 

price increases but which are not the subject of futures trading include manganese, cobalt, cadmium, 

rhodium, tungsten, rice, coal and onions.
11

2. Greater transparency of fundamental commodity market information is 

needed

Commodity futures markets are price discovery markets,24 in which the futures price tracks 

the prices of and signals information and expectations about the direction of the underlying 

markets.

25

The quality of the price which the futures market discovers reflects the extent of the markets

understanding of the available underlying data, and the quality of that data. If data is 

inadequate, or of poor quality, it makes it difficult for futures market regulators to determine 

accurately whether or not certain activity or price movements are unusual.26 Accordingly,

information about the underlying commodity is key for the satisfactory functioning of the 

futures market and reliable price discovery.

27

Inquiry into the price formation process similarly can benefit from more comprehensive 

fundamental information in order to understand better the interactions between futures and 

the cash markets. For example, as previously noted, the World Economic Outlook observed 

that with respect to hoarding studies, “data on commodity inventories are poor and lack 

global coverage.”28 As noted by HM Treasury, “greater transparency across all parts of the 

commodity market – from information on harvest predictions to local farmers through to the 

production capacity of the major energy producing countries – can also play a role in helping 

all sides gain a better understanding of trends in supply and demand.”29

Futures market regulators should help to promote improvements in the underlying data to 

reduce market uncertainty and to understand better the fundamentals driving the market. In 

this regard the Task Force considers that working with existing international and domestic 

organizations, whether governmental or private, to improve data collection and 

dissemination, may be the most efficient and practical way to achieve transparency 

improvements.

 

24 See The Need for Transparency in Commodity and Commodity Derivatives Markets, Piero 

Cinquegrana, European Capital Markets Institute (ECMI) (2008) at p.17 et al for a discussion of the 

social utility of futures markets price discovery function and the need for greater commodity market 

transparency. In arguing for more transparency, the author notes that in addition to increasing the 

informational efficiency of futures markets, “heightened transparency would enhance the disclosure of 

financial risk.” 

25

 As noted by Till in the EDHEC report at p. 26: “In the absence of key (timely) fundamental data from 

non-OECD countries, one can rely on the transparency of commodity futures markets to infer what 

concurrent and future expectations are regarding the oil supply-and-demand balance...” 

26

 The European Commission is considering a market abuse regime and trading transparency, including 

recordkeeping for the electricity and gas spot markets. The analysis undertaken has indicated that an 

improvement of disclosure of “fundamental data” e.g., data on production, storage and network 

capacity, is widely perceived as critical for the integrity of these markets. Improvements in this regard 

are being considered in connection with a market abuse regime.

27 Examples of underlying cash market data include published prices and indexes of cash market 

transactions, inventory and storage reports, crop reports, government data e.g. cattle data in the US, and 

all other market information on a particular commodity. The cash market data are available either 

publicly or privately, usually through third party vendors. The cash market data is used by both market 

participants and regulators to assess both current and prospective economic conditions.

28 See fn. 8 World Economic Outlook.

29 Global Commodities: a long term vision for stable, secure and sustainable global markets (June 2008) 

at p. 64.
12

Recommendations30

Underlying data

Futures market regulators should promote improvements in the availability and quality of 

information on commodities that are related to commodity futures in order to reduce market 

uncertainty and to understand the fundamentals driving the market. Efforts could include 

encouraging data providers to provide a greater level of detail to data that are already 

published. For example, it may be possible for certain data providers to publish not only 

aggregate inventory and storage data but regional data as well. There may also be 

improvements regarding the accessibility of data, such as making the data readily available 

on the internet. For example, IOSCO could support efforts by its members from oil 

producing countries to work with national energy authorities to improve coverage of the Joint 

Oil Data Initiative.31 Task Force members could do further work suggesting improvements. 

 Futures market regulators should support initiatives to promote transparency in the 

underlying market32;

 Futures market regulators should encourage market participants to publish appropriate

information in an accurate and timely manner; and

 Futures market regulators should encourage private organizations that collect relevant 

fundamental commodity information to adopt best practices and should evaluate what 

improvements are appropriate to enhance fundamental cash market data and develop 

recommendations for improvements.

OTC data

 Futures market regulators should evaluate what improvements are appropriate to 

enhance access to, and the usefulness of, OTC derivatives market data and develop 

recommendations for improvement. 33

Data dissemination

Disseminators of cash market data are relied upon by markets and commercial users. Where 

appropriate, ways in which the reliability of this market data could be improved should 

therefore be considered. These could include requiring accountability for false and 

 

30 Throughout the report, the Task Force has not attempted to rate the recommendations provided in order 

of importance.

31 The Joint Oil Data Initiative (JODI) is a transparency initiative established in 2003 as a permanent 

mechanism by the Asia Pacific Economic Co-operation (APEC), the Statistical Office of the European 

Communities (Eurostat), the International Energy Agency (IEA), the Latin-American Energy 

Organization (OLADE), the Organization of Petroleum Exporting Countries (OPEC) and the United 

Nations (through the UN Statistics Division). More than 90 countries, representing more than 90 

percent of global supply and demand, are now submitting data to the joint oil data initiative database. 

The data cover production, refining, demand and stocks of seven product categories: crude oil, LPG, 

gasoline, kerosene, diesel oil, fuel oil and total oil. JODI is promising work in progress with great 

potential. See http://www.jodidata.org/WJODI.shtm

32 See, e.g. In December 2008, the US Securities and Exchange Commission approved revisions to 

modernize its oil and gas company reporting requirements to help investors evaluate the value of their 

investments in these companies. http://www.sec.gov/news/press/2008/2008-304.htm. 

33

 In July 2007, the Chairman of the UK parliament‟s Treasury Select Committee indicated his intention 

to request that the Bank for International Settlements disaggregate their published data for commodities 

into separate classes to afford additional transparency. 
13

misleading data, encouraging the development of best practices and the increase of 

transparency of methodologies.
14

Transparency and Market Surveillance 

As set out in the IOSCO Objectives and Principles of Securities Regulation (2008) the three 

core objectives of securities regulation are: the protection of investors, ensuring that markets 

are fair, efficient and transparent; and the reduction of systemic risk. Robust market 

surveillance and enforcement programs are needed to implement these objectives. The Task 

Force focused on enhancing the ability to detect, enforce and deter manipulative and other 

abusive trading on commodity futures markets and on making recommendations with the 

objective of improving transparency in underlying commodity markets.

The Task Force agreed that the Tokyo Communiqué,

34 which sets out guidance on standards 

of best practice in contract design, surveillance and information sharing with respect to 

physical delivery futures markets, continues to provide a comprehensive guidance that can 

assist futures market regulators in building an effective market integrity program.

35

The Task Force specifically examined the Tokyo Communiqué and noted that the basic 

precepts of the surveillance and contract design guidance apply equally to exchange-traded 

futures, options on futures and options – derivatives – contracts on all types of commodities, 

but recognized that the recommendations may need to be adapted depending upon the 

characteristics of the derivatives contracts traded on a particular market.36

Notwithstanding this prior action, the Task Force recommends that the Technical Committee 

re-endorse to the IOSCO membership, and to relevant non-IOSCO stakeholders, the 

 

34 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), co-sponsored an international regulators' 

conference in London on physical delivery markets in international commodities. The London 

conference focused on the special problems that physical delivery markets pose for regulators and 

considered how contract design, market surveillance and international information sharing can reduce 

the potential for, and assist in the management of, manipulation and other market disruptions. The 17 

countries participating in that meeting issued a Communiqué agreeing on certain basic principles of 

regulation and on a year-long work program.

That effort culminated on October 30 and 31, 1997. Representatives of regulators from 16 jurisdictions 

responsible for supervising commodity futures markets participated in a conference in Tokyo, Japan, 

jointly chaired by the CFTC, the Japanese MITI and MAFF and the UK FSA, and announced the 

completion of the work program contained in the London Communiqué issued in November 1996. At 

the end of the meeting, the regulators issued a communiqué (the Tokyo Communiqué) which, among 

other things, endorsed two guidance papers, one on best practices for the design and/or review of 

commodity contracts and another on market surveillance and information sharing. The guidances 

represent the first occasion on which regulators responsible for overseeing commodity derivatives 

markets have agreed to international standards for the supervision of these markets. See Tokyo 

Communiqué at 

http://www.cftc.gov/stellent/groups/public/@internationalaffairs/documents/file/oia_tokyorpt.pdf or 

http://www.meti.go.jp/policy/commerce/intl/tkyc.pdf

35 Eight Task Force member agencies had participated in the development of the Tokyo Communiqué.

36 The Application of the Tokyo Communiqué to Exchange-Traded Financial Derivatives Contracts

(IOSCO) (1998). “In developing surveillance regimes, market authorities may need to place different 

emphasis on the nature of the underlying reference commodity and differences in the size e.g. large 

open interest, small open interest, and composition e.g., ability of traders to make or take delivery, of 

the market.” p. 4 With respect to the contract design guidance, market authorities “may need to place 

different emphasis on specific issues, such as delivery characteristics or cash settlement type,

depending upon the nature of the underlying reference commodity and differences in the cash market p. 

12.
15

continued relevance of the Tokyo Communiqué and that futures market regulators should 

evaluate their oversight programs for compliance with the Tokyo Communiqué guidance.

A key point contained in the Tokyo Communiqué that is highly relevant to contemporary 

surveillance concerns is the recommendation that authorities that are responsible for market 

surveillance should be able to access sufficient information about futures and related cash 

positions37 in order to identify dangerous concentrations of positions, to evaluate overall 

composition of the market and to assess its functioning. Obtaining such information across

these markets assists regulators in determining a large trader‟s intentions in respect of a 

particular commodity38

In this regard, and in response to some of the issues addressed by the Tokyo Communiqué, the 

IOSCO Technical Committee published a report Guidance on Information Sharing, which 

identifies information that may be relevant from a market surveillance perspective in 

addressing specific types of market events.39 The type of information that potentially may be 

relevant for market oversight purposes was further developed in the Technical Committee‟s 

report on Multi-jurisdictional Information Sharing for Market Oversight published in April 

2007.40 Depending on the links between specific commodity markets, this is an area in which 

the development of formal information sharing arrangements may be appropriate.41

In addition to outlining the types of information that may be useful to share when addressing 

cross-border surveillance concerns, the Multi-jurisdictional Information Sharing for Market 

Oversight report makes clear that parallel trading of derivatives42 may present opportunities 

for market users to use parallel trading to engage in conduct that is illegal in one or both 

jurisdictions. For example, a manipulation scheme may involve trading in multiple markets –

both financial and underlying.

43

 

37

 “Related positions” are positions in other markets that are somehow linked or tied economically to the 

positions in the regulated market, for example contracts on the same commodity or products having a 

pricing mechanism that is linked to the futures settlement price.

38 See also Oil prices: the True Role of Speculation at pp. 26-27 “the opaqueness in commodity 

derivatives trading is concentrated in the over-the-counter (off-exchange) derivatives markets.” 

39

 Guidance on Information Sharing (IOSCO 1997). The Guidance provides that in dealing with unusual 

price movements or market volatility, markets and regulators should be prepared to share the 

following information: i0 firms/customers controlling or owning the largest long/short positions in 

relevant securities or derivatives; (ii) concentration and composition of positions in the relevant 

securities or derivatives, including Firm positions or Customer positions, both on organized markets 

and in the OTC markets; and (iii) characteristics of related instruments, such as terms of the underlying 

cash market instrument or physical commodity, procedures for delivery or cash settlement, and 

deliverable supply of the relevant cash market instrument or physical commodity.

40 Multi-jurisdictional Information Sharing for Market Oversight (IOSCO April 2007) at p. 11. Among 

the information cited as possibly being useful is: transaction information e.g., details of trader‟s 

positions, large positions, and related underlying market positions,: and inventory levels and locations 

of delivery stocks – details of related warehouse information. 

41

 For example, in 2006 the CFTC and UK FSA signed an MOU to address cross-border market 

surveillance concerns with regard to the trading of linked oil contracts on futures exchanges in both 

jurisdictions.

42

 “Parallel trading” means for purposes of this paper when a derivative contract traded in one jurisdiction 

is based on the same, or an almost identical, underlying asset, or measure, as a derivative contract 

traded in another jurisdiction.

43 Cases involving such multi-market schemes were discussed by the CFTC and Kredittilsynet of 

Norway and illustrate the need for access to related underlying market information. An example of 

market manipulation involving several commodities derivatives markets is the production of electricity 

using coal, oil or gas in the EU, which triggers trades of carbon emissions. If a situation occurs where a 

small increase in position in the emission derivatives market gives a large increase in prices in the 
16

The goal of improving the ability of futures market regulators to access potentially useful 

information is not a blanket recommendation for the imposition of mandatory routine 

reporting requirements in all cases. However, regulators may need jurisdiction to collect 

information from outside the directly regulated futures markets for surveillance or 

enforcement purposes e.g. investigations into market abuse.

The objective of obtaining additional trader data across all markets is to reduce informational 

gaps. Therefore the intention is not for the data to be used to conduct market surveillance of 

those markets outside direct regulatory scope, but rather to determine whether or not potential 

manipulation or other market abuses may be taking place in the regulated commodity futures 

markets. The determination of usefulness therefore will generally be made on a case-by-case 

basis, taking into account the specifics of the futures contract and its related cash markets.

For this reason, market surveillance must be resource sensitive because generally it is neither 

physically possible nor necessary to scrutinize every trade, and/or every position, in order to 

form an understanding of market action.44 Moreover, futures market regulators should 

recognize the burdens and costs imposed on the requested entity. As observed in the Multijurisdictional Information Sharing Report, information sharing requests can result in 

information over-load and unnecessary burdens, for both the requesting and requested entity,

if not carefully calibrated.45

 

electricity market it will be possible to take a position in the electricity derivatives market, and then 

take a position in the emission market. The market price in the electricity derivatives market increases 

and the position in the electricity derivatives market is reduced again - at a higher price. The position in 

the emission market is then reduced, potentially at minimal cost. Partial investigations in each 

derivatives market will reveal no evidence of manipulation. The same scheme may be possible in all 

markets where the price of one product admitted to trading on a regulated market influences prices of 

other products admitted to trading on a regulated market. The different products may even be traded on 

different regulated markets or on several regulated markets. It may also involve the underlying physical 

markets.

44 However, it should be understood that in an investigation for market manipulation, it often may be 

necessary to reconstruct the entire trading record.

45

 See Multi-jurisdictional Information Sharing for Market Oversight (IOSCO April 2007) at p. 7. “For 

information to be useful to the requester, it needs to be relevant, to arrive in useable form and to be 

obtainable on a timescale appropriate to the need. All information requests are resource-consuming for 

a requested authority, some of whom may have limited resources. So it is important that authorities 

likely to require information give thought to the focus, clarity and prioritization of their information 

requests. They should also be mindful of the types of public information that they can readily obtain 

from themselves, in particular via websites.”
17

Recommendations

The following recommendations are intended to enhance commodity market transparency:

 Futures market regulators should have access to information that permits them to 

identify concentrations of positions and the overall composition of the market, 

including the authority to access a trader‟s related financial and underlying market 

positions. They should review the scope of their authority and if necessary take 

affirmative steps to request the necessary powers legislatively;

 Market surveillance should take account of a trader‟s related financial and underlying

market positions;

 Because no futures markets regulator will necessarily have all the information they 

may need to form a comprehensive understanding of price formation and market 

conduct in the markets under their jurisdiction immediately available to it all the time, 

futures market regulators must be prepared to share such information with their 

regulatory counterparts, both domestic and foreign;

 Futures market regulators should encourage the development of agreements with 

national authorities responsible for any relevant cash market commodities in order to 

facilitate the sharing of needed cash market information, and, where relevant, request 

the legal competence for cooperation with these authorities. Such formal 

arrangements should be augmented through informal sharing of supervisory concerns; 

 Futures market regulators should be prepared to develop information sharing 

arrangements to address the parallel trading of derivatives contracts on exchanges in 

different jurisdictions where this appears to be appropriate due to links between the 

specific commodities markets;

 Market surveillance programs should be supported by sufficient resources and 

analytical capabilities.

46

 

46 Developing sufficient analytical capabilities may require the development of new analytical tools and 

approaches. It is for this reason that this report recommends that futures regulators periodically meet to 

share concerns and approaches to surveillance and enforcement.
18

Enforcement Challenges Involving Commodity Futures Markets

Manipulation of market prices is a clear threat to the integrity of the marketplace and to the 

fundamental purposes of futures markets – risk management and price discovery. One of the 

features of commodity futures markets is the difficulty in proving that manipulation has had 

or is likely to have a direct effect on market movement. There is a history of regulators 

working together to create best standards for market manipulation identification and 

prosecution. In May 2000, the Technical Committee published a report entitled 

“Investigating and Prosecuting Market Manipulation.”47 The report acknowledged the 

harmful market effects of manipulation and identified effective means to address 

manipulative activity. The report recommended that regulators have effective tools to 

prevent and detect market manipulation, adequate authority to investigate, deter and 

prosecute market manipulation, and the ability to cooperate at all stages of a matter.

However, the Task Force recognised that a number of issues remain that complicate the 

successful identification and prosecution of manipulation and other abusive conduct in 

commodity futures markets. These issues can include:

 inadequate legal framework (i.e. definitions and standards of proof);

 inadequate powers to access information in related underlying markets;

 difficulty of identifying manipulative schemes involving multiple markets and 

participants;

 lack of ability to investigate non-regulated entities;

 inadequate resources; and

 outdated record-keeping requirements.

The aim for all jurisdictions is to have a legal framework that is able to provide effective

enforcement deterrent. As legal systems vary between countries, the following examples 

intend to address these issues only where appropriate.

Recommendations

 Where appropriate, futures market regulators should review their existing statutory 

and administrative market abuse authority to determine whether it adequately allows 

for the prosecution of attempted manipulation. Parties involved in manipulation may 

not succeed with the scheme to influence the price of a derivatives contract and it may 

be difficult for regulators to prove perfected manipulation. Futures market regulators 

should take affirmative steps to request the necessary powers to enforce against 

attempted manipulation;

 Attempts to manipulate commodity futures markets may often involve conduct in

financial and underlying markets. The inability of futures market regulators to access 

information with regard to certain markets is a material deficiency that should be 

addressed through legislative action. Futures market regulators should cooperate with 

any other relevant authorities, domestically and internationally, in order to share 

supervisory information and to assist in possible investigations of abusive conduct;

 

47

 Investigating and Prosecuting Market Manipulation, Report of the Technical Committee of IOSCO, 

May 2000, available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD103.pdf. 
19

 In some jurisdictions, futures market regulators do not have the ability to investigate 

entities that are not regulated. This can dampen the ability to investigate and enforce 

manipulative conduct. Futures market regulators should consider requesting authority 

to investigate all entities for potential manipulative conduct;

 Futures market regulators should ensure that they have sufficient resources for an 

enforcement program that targets manipulative and other abusive trading conduct, 

including complicated manipulative schemes involving multiple (i.e. financial and 

underlying) commodity markets; and

 Futures market regulators may wish to consider whether enhancing record keeping 

requirements, such as telephone recording and extended record retention periods,

could be of benefit to the enforcement investigation process.
20

Enhancing Global Co-Operation 

One of the principle challenges noted by the Task Force in its discussions was how members 

should both unilaterally, and multilaterally, respond to the increasingly globalized nature of 

commodity markets. Whilst some commodities markets, e.g. local electricity markets, 

remain largely domestic in nature, partially because of infrastructure restrictions, many are 

now truly global, e.g. oil and copper markets. Market participants may typically trade 

through different time zones, from multiple legal entities and at different trading venues for 

the same underlying as part of an integrated strategy. Global trading strategies have 

implications for domestic regulation, as multiple futures market regulators with differing 

responsibilities and powers will typically have responsibility for this single activity, and face 

significant challenges to ensure they co-operate appropriately to achieve effective monitoring 

of the activity and supervision of the entities concerned.

The constant evolution of abusive trading strategies involving multiple markets also 

potentially challenges surveillance and enforcement, as it complicates both the detection and 

prosecution of manipulative and other abusive trading in commodity futures markets. 

Accordingly, the Task Force encourages co-operation between futures market regulators and 

other relevant authorities wherever it is appropriate and likely to add value.

The Task Force also noted that Tokyo Communiqué states that futures market regulators

should seek to participate in and make use of the Declaration on Cooperation and 

Supervision of International Futures Exchanges and Clearing Organizations (Declaration). 

Under the Declaration, the occurrence of agreed triggering events affecting an exchange 

member‟s financial resources, positions, price movements or price relationships, or events 

suggesting manipulation or other abusive conduct, will prompt the sharing of information. 

48

 

A companion Exchange MOU similarly prompts the same type of information sharing among 

commodity exchanges.49

Both of these arrangements provide a readily-available structure for prompting the sharing of 

information that is needed to identify potential market integrity problems as well as the 

systemic risks associated with a globally active trading firm. Accordingly, futures market

regulators and exchanges should be encouraged to adhere to and, more importantly, utilize

these arrangements.

50

 

48 The Declaration (and companion Exchange MOU) were created to address the problem of accessing 

information about large exposures where exchange member firms and market participants typically 

trade on multiple exchanges and no one regulator or market authority will have all of the information 

necessary to evaluate the risks in its markets. The Declaration, and its companion Exchange 

Memorandum of Understanding (Exchange MOU) were at the core of improvements in international 

cooperation contemplated at the 1995 Windsor meeting, which was convened following the collapse of 

Barings Plc.

49 The Futures Industry Association‟s Global Task Force on Financial Integrity developed the Exchange 

Memorandum of Understanding among markets and clearing organizations. The Declaration was 

developed as a complementary arrangement among regulators both to serve as an independent 

arrangement for the sharing of information prompted by large exposures and possible manipulation, 

and as a supplement to the Exchange MOU in cases where a governmental regulator was deemed 

necessary for the sharing of confidential information. Thus, the two arrangements at the exchange 

and regulator levels are complementary.

50 The specific implementation of any request pursuant to the Declaration remains subject to any existing 

information sharing arrangements. In this regard, the Task Force emphasizes that the IOSCO 

Multilateral MOU remains the primary vehicle for structuring information sharing among IOSCO 

members. 
21

Discussions also centered on various practical obstacles to coordination during emergencies. 

The mundane but vitally critical need for maintaining up-to-date contact lists was noted. In 

addition, the difficulty of establishing and keeping communication lines open when contact is 

infrequent was noted as an obstacle to cooperation during an emergency. There is real value 

in having regular opportunities for meeting and discussing surveillance and enforcement 

concerns, particularly in an environment that has seen abusive trading schemes involving 

both financial and underlying markets. Not all regulators have gained experience with these 

types of schemes and, it was observed that it would be useful for futures market regulators to 

meet regularly to discuss their current concerns about markets as well as to share their 

surveillance and enforcement approaches.

Recommendations

 The relevant futures market regulators should convene periodically to discuss 

informally their concerns regarding commodity market activity and their experiences

in conducting the surveillance of, analyzing cross-market data for, and investigating 

and enforcing commodity cases. Such sharing of contemporary concerns and 

techniques can strengthen the effectiveness of their surveillance and enforcement 

capabilities. These meetings may also serve as a basis for organizing commodity 

markets scenario modeling exercises;

 Futures market regulators should encourage gathering information in a format that can 

facilitate sharing and analysis of data; and

 The Task Force would like IOSCO to consider, as part of its current structural review,

how the institutionalization of cooperation among futures market regulators, as 

recommended above, can fit in with the existing IOSCO framework and how its 

implementation would be best achieved.
22

Appendix

First Interim Report on Oil Price Developments and Measures to Mitigate the Impact of

Increased Oil Prices, European Commission (1 September 2008) ECFIN/REP 54538-EN is 

available at http://ec.europa.eu/energy/observatory/oil/doc/prices/oil_price_in_2008.pdf; 

Global Commodities: a long term vision for stable, secure and sustainable global markets, 

HM Treasury (June 2008) is available at http://www.hmtreasury.gov.uk/d/globalcommodities.pdf;

The Inter-Agency Task Force on Commodity Markets (July 2008) is available at 

http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfinterimreportoncrud

eoil0708.pdf;

The Need for Transparency in Commodity and Commodity Derivatives Markets, Piero 

Cinquegrana, European Capital Markets Institute (ECMI) (2008) 

http://www.eurocapitalmarkets.org/category/1/2

Oil Prices: the True Role of Speculation, Noel Amnec, Benoit Maffei and Hilary Till, 

EDHEC Risk and Asset Management Research Centre (November 2008) is available at 

http://www.edhec-risk.com/features/RISKArticle.2008-11-26.0035.

World Economic Outlook, Chapter, International Monetary Fund (October 2008) is available 

at http://www.imf.org/external/pubs/ft/weo/2008/02/index.htm.